Iraq Veteran develops innovative peer-to-peer lending system
Veterans with franchises get better access to credit
After World War II, millions of American Veterans became business owners. This “greatest generation” sparked an economic boom, and America flourished. Banks were smaller, community-oriented, and supporters of small business. Oh, right, business owners had access to these small business loans. Times may be changing back to the future!
When Veterans say,” leave no man behind” that may now include a Veteran left behind by a loan rejection at a bank. A Veteran can now go to his peers and other investors to pitch his project directly. That’s the thesis at a new company called Street Shares which was started and now run by an Iraq War Veteran, Mark L. Rockefeller.And he’s already taking it to the streets. According to Mark “One could describe StreetShares as Shark Tank meets eBay.” It’s the only place in America where the borrower ‘pitches’ and the Investor ‘bids’ for a loan. Investors also get to see the data like any lender, but like the old days, get more exposure to the borrower’s character as well.
StreetShares is a social lending marketplace that connects small business owners with investors. Small business owners create business pitches to request loans from institutional and retail investors. Investors make bids to back a loan to the small business.
The end result: Small business owners get the loans they need, and investors get the returns they require. Loan amounts are up to $50,000 but don’t necessarily need full asset security for approval. The minimum requirements include being in business for one year, earning revenue, being incorporated or a single member LLC, plus having reasonable credit and being willing to guarantee the loan.
Unlike crowdfunding sites that simply bring together businesses and investors, StreetShares stands in the middle of the transaction, issues the loan to borrowers, and manages repayments to investors.
Also, StreetShares provides small business loans, not equity investments. This way, business owners do not have to give up ownership, and investors do not have to wait years before receiving any returns.
But like crowdfunding, StreetShares provides an online marketplace that democratizes capital, gives approved investor members the opportunity to invest in private businesses, and gives businesses the opportunity to obtain funding from large numbers of investors, including other Veterans and their customers.
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Veteran borrowers get to ‘pitch’ directly to potential investors, tell about their companies and why they’re requesting the loan. Veterans can let them know why a product or service will succeed allowing them the chance to set their company apart from the competition.
Investors bid on their returns
On the investor side of the transaction, bidding is done through a “reverse auction” process. The winning bids are those with the lowest interest rate demanded by investors. Investors search for and select borrower loan requests they find attractive. Then they choose an amount and rate they want to bid.
During the course of the auction, multiple investors place bids to fund “loan shares” of the overall loan request. All bids are transparent to all investors, and investors place bids, naming both the amount they wish to invest and the interest rate they require to back the loan.
Bids can be as low as $25 or as high as the entire remaining amount on the loan request. StreetShares places the first bid, co-investing in every loan at a rate StreetShares thinks is appropriate given the risk. At the end of the auction, the bids with the lowest interest-rate demands that equal the remaining loan amount are consolidated to form the financial backing for the loan. The more bids in the auction, the lower the interest rate the business borrower will pay. At the end of the auction, the borrower can elect to accept or decline the offered loan.
It’s tough for any entrepreneur to get financing in the early stages of a business so the StreetShares peer-to-peer lending model could well be a game changer both for Veteran franchises and other community small businesses. It’s appropriate that a member of the next “greatest generation” is the pioneer.