SoMoLend Lender Survey Insights

SoMoLend values the opinions of our lenders and borrowers on our platform. In an effort to better understand our lenders’ investing needs and opinions of our site we distributed an online survey in May 2013 to our registered lenders. The objective of the survey was to better understand the demographics of lenders on the site, understand the reasons why lenders did or did not lend, understand motivators for lending and the criteria for selecting business loans and usability of the platform. This insight will help us uncover areas for improvement to enhance the user experience.

Below we have shared some interesting findings related to lender motivation and criteria.

1. The top three borrower criteria for lenders were: 1) management experience, 2) risk level, and 3) the industry. The relationship with the business owner, and the loan amount followed closely behind in terms of importance to the lender. Lenders were less concerned with the number of years in business, the funding type and the state the business operates within. 

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  1. The survey indicated the top three reasons for funding a loan on SoMoLend would be to: 1) Diversify portfolio 2) ROI 3) Support the local economy. Paying a reasonable investment portfolio fee was not much of a motivation for lenders to sign up on the site. Lenders were motivated by their passion for crowdfunding as a reason for signing up on the site. Several of the respondents indicated that they were just “kicking the tires” as motivation for signing up on the site. 

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  1. The survey indicated that almost 30% of respondents are looking to loan between $501- $1,000 per year to a single borrower. This is followed by 21.6% of the respondents who indicated that they are looking to loan $250 or less per year to a single borrower. The response rate of 10.8% was the same for those looking to loan between $1,001-$2,500 and $2,501-$5,000 per year to a single borrower. See the chart below to view all of the responses. 

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4. The top three factors when deciding to lend money to a borrower are: 1) Confidence level in the business’s ability to pay back the loan, 2) Financial statements, and 3) Interest rate offer. These were closely followed by a business plan and the reason the borrower needs the funding. The borrower credit score and their ability to easily communicate directly with the business borrower were of concern but not as a high of a priority for the lender. Lenders were not as concerned with customer endorsements, the endorsements of other lenders for the business or their relationship/knowledge of the owner. 

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5. A typical lender on our site is looking for a yearly net ROI of 6-10% as indicated by almost 50% of the respondents. Nearly, 30% of respondents were looking for a yearly net ROI of 11-15%. The survey showed that 13.5% indicated they were looking for a return of 16- 20%. The remaining respondents indicated that 5.4% desired a return of 1-5% and 2.7% desired a return of more than 25%. 

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Overall, the survey was successful in helping us understand the needs of our lenders and how we can enhance their experience. For example, we gained insight into how important the management team is in the lending decision so we are considering ways to present this information differently. The survey also indicated that many of the respondents are anxious for crowdfunding regulations to become implemented by the SEC. 

SoMoLend Entrepreneur Spotlight

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SoMoLend’s focus is helping entrepreneurs acquire the capital they need to launch or expand their own businesses.  That being said, we love spotlighting CEOs and business owners we look up to within and outside our industry.  Today’s blog is dedicated to an interview with Springboard Enterprise’s CEO and Founder, Amy Millman.  Stay posted for other spotlights in the near future.

How difficult is it for female entrepreneurs to secure capital in today’s economy?   There is a lot of money (dry power!) out there waiting to be put to work (invested in promising companies).  That said, unless you have a successful track record, are married to an investor, worked with investors, have a network that includes close working/social relationships with your colleagues from Stanford, Harvard, MIT, Chicago, and about 10 other universities, know someone who knows someone in those networks and is willing to go to bat for you or you just happen to be in the right place at the right time (luck meets opportunity),  it’s difficult for anyone to secure the capital you need to grow fast.  Until groups like Springboard came into existence there were few access points for most talented women entrepreneurs.   It would also help if there were more women investors.   Still, we’ve come a long way (baby!) since 2000 when we launched Springboard.

What strengths and weaknesses to women business owners bring to the table?  We’ve found that women have all the qualities necessary for running successful fast growth companies but often undersell themselves.   The same qualities that investors want to see in CEOs focused, strategic, big picture view but detail oriented, collaborator, problem solver, etc. –  are not the qualities that attract investors to a founder when they first meet.   It’s like a marriage, you look for someone who is like you when you are dating but want  to marry someone who complements you.

Do you feel that factors like caregiving and family impede female entrepreneurs more than men? What would be some solutions you believe would help or do you feel it should not factor in?  Most of the women entrepreneurs we work with are expert at multitasking and that includes raising children.   Investors have not shown themselves to be particularly comfortable with pregnant CEOS but perhaps once women CEOs of child bearing age are more visible and investors see big returns from companies led by women who have given birth while launching and growing their companies, investing in women won’t make them so uncomfortable.   Changing attitudes and behavior takes time but nothing makes change happen faster than a big lucrative exit.
Why would you suggest a female entrepreneur utilize an Accelerator?   Anyone who thinks they can build a company by themselves without the right team and a big tent network to open doors and help with challenges is fooling themselves.  Can’t be done.  Accelerators are an important player in network building.  However, they are not a one size fits all, so it’s important to pick the right one.

What would you say to a woman who wants to start her own business – what would be your most important advice?
 Owning your own business is one of the most satisfying and terrifying experiences anyone can undertake.  If you are fearful of failing, perhaps you aren’t ready or willing to take the plunge.  But, if you have a passion and the drive to find the resources to help make your vision a reality, you really need to go for it.   You’ll find that you know more than you think you know and that people will be happy to help you succeed.  The key is to be someone who reaches out, asks for advice and cultivates a large and engaged network.

What has been your biggest challenge or failure in founding your business and how did you overcome it?  I started this non-profit organization with very little experience managing finances and I would say that that has been my biggest challenge.   Very quickly I realized that ‘the numbers tell the story’  of what is really going on with the business/organization and you can overcome that challenge if you gave sufficient time and resources to managing finances on a day to day basis.  Of course, it’s smart to hire someone early on who does this well.  I always say that you should have a lawyer and an accountant watching your back at all times.

Anything else you would like to add?   Launching, growing and running a business is not rocket science (unless that what your company is all about).  People have been doing this for thousands of years and while it isn’t an exact science there are rules of thumb you must adhere to.  Know the rules and start clean, recruit a team you can trust that buys into your vision, build an expert network, hire a good lawyer and an accountant and don’t wing it –  build and iterate but follow the plan.

Check out Springboard’s column on Inc.com HERE.

About Amy Millman: Amy Millman is a passionate advocate for women entrepreneurs building Big Businesses Starting Small. In 2000, she co-founded Springboard Enterprises, a non-profit venture catalyst which sources, coaches, showcases and supports women-led companies seeking equity capital for product development and expansion. Springboard has assisted hundreds of women entrepreneurs in raising billions in investments and connecting with thousands of expert resources. The successes of Springboard entrepreneurs include 10 IPOs, legions of high value M&As and a community of accomplished serial entrepreneurs. During her career in Washington, DC, she served as a representative for several industry groups and was appointed as Executive Director of the National Women’s Business Council during the Clinton Administration. She served on the boards of many organizations including her current service with JumpStart Inc. and Enterprising Women Magazine. She is a graduate of Carnegie Mellon University and holds a Masters degree from The George Washington University.

 

Lobbying for “Integration”

Yahoo! News recently posted a great article called, “The JOBS Act: Could It Create a Two-Tiered System?”  Authors, Daniel Gorfine and Ben Miller, address a very important issue which is the divide created between accredited investors and crowdfunders resulting from Title 2 of the JOBS Act.  Title 2 includes the removal of the general solicitation ban for 506(c) offerings.  What does this change mean for these two different types of investors?

This means that any business setting out to raise money from accredited investors can now use advertising to do so; however, they are only able to accept money from accredited investors.  One example of this would be a business owner taking out a full-page ad in the Wall Street Journal advertising the benefits for accredited investors to fund their business.

Crowdfunding, on the other hand, is a completely different offering and does not allow for advertising.

This ultimately creates a divide – forcing entrepreneurs to choose one avenue or the other.  We agree with this article in that “if the SEC is not careful, the net effect of the JOBS Act may be to further empower more affluent investors, while leaving the crowd behind.”

SoMoLend has been lobbying for a solution to this issue with strong advocacy for integration. Integration essentially allows an entrepreneur to do a crowdfunding exemption offering via a portal while simultaneously raising money through advertising to accredited investors. While many are pushing for this amendment, it is still under consideration with the SEC now.

In our own meetings with the SEC, SoMoLend has suggested that they allow for integration as long as the offerings have identical terms.  For instance, a borrower could accept $1 million through a crowdfunding platform and $5 million through a 506(c) as long as they are willing to offer the same investment terms; we feel this would eliminate the problem altogether.

For us, it doesn’t matter so much how the borrower or investor finds out about the opportunity as much as it does how educated they are on all of the factors involved with the transaction.  Whether the information is disseminated through solicitation or word of mouth referrals, the most important factor is the clarity of the message and opportunity.  That’s why we strive to keep it simple when it comes to connecting the right borrower to the right lender and are committed to teaching and assisting both parties along the way. For more information on this topic or questions for SoMoLend, please email info@somolend.com.

 

 

Writing a Persuasive Investment Proposal

When you’re thinking of starting a business, the first question that comes to mind is how you’ll fund the project. No small business can run off pure passion and excitement, and thus finding that money becomes one of your first tasks. If you’re uninterested in applying for small business loans, another option is to ask for money from investors, and when you do that you have to write an investment proposal.

Contrary to how it may sound, this task is not quite as easy as laying out the facts. Sometimes, persuading business people to invest in you is about that little extra. Rishi Anand, the Founder of Venture Giant says in an article, “I have seen seemingly weak value propositions receive 9 – 10 angel investor contacts on the day of dispatch only because the investment proposal had been well written and well thought out!” There are 4 key facts to consider here.

Addictive Title

Right out of the gate, you want your investors asking for more. You want them addicted to your business and sure of their investment. Creating a well-written, compelling and enticing title will be integral to getting them to move on to the important stuff like your business model and potential ROI. Consider these points as you write your title.

  • Keep it short and to the point – they should know what it is right away.
  • Make it sound successful. Think: Car Dealership to Auto Retailer. Simple changes can make the difference.

Get Started Right Away

Your intro is the first information they get on your proposed business, and so you should provide the vital information immediately. Avoid the run on sentences and excessive language. Rather, you want to get right to the main points of finances and business terms. In here, you want to discuss:

  • What is your business?
  • How much do you need?
  • How will it be used?

The Best Facts

You’ll want the main portion of your text to make you sound undeniable. While you may be just starting a business, at this point you should have an idea of the money you can make, the money your competitors are making, etc. These facts need to be enticing, as often this is the only aspect of your proposal the investors are interested in. However, there is one important metric here.

  • Anticipated ROI: This should not only say how much your investors can get back, but what they will need to put in as well. You’ll also explain expected wait time for the initial investment to be made back and then profits from there. Give your greatest numbers, but be sure to remain realistic.

Your Unique Spot

Finally, before your final summary, you want to explain to the investors why you are unique in this industry. In such a competitive market, it’s likely your business is not original. In this section, you want to place yourself within the industry and make some compelling comparisons.

  • How does your business model set you aside?
  • How will you combat any current economic deterrents?
  • What do you do that your competitor doesn’t?
  • How will you grow with the industry you’re in?

As Anand says, it doesn’t take a spectacular proposal to win over investors, but one that is done so well that it’s compelling. By taking the basics of your proposal and making them work in your favor, you can persuade any investor to become a part of your dream business.

Guest Contributor Bio: Jessica Sanders is an avid small business writer. As the marketing copy-editor of Resource Nation, she touches on a range of topics such as business phone systems and small business checking.

“SEC uses JOBS Act to set up new roadblocks to crowdfunding”

A recent article by Jason Best and Sherwood Neiss of CFIRA discusses the SEC’s recent proposed rules which would establish various different classes of investors.  SoMoLend feels the need to clarify that this would primarily affect Reg D accredited investors.  While the article is accurate, this will not affect most crowdfunding platforms including SoMo which is considered a portal. However, the rules would strongly impact broker dealers.  To  read the full article by Best and Neiss, please see below.

“Disappointing news came out of the SEC meeting yesterday designed to open the way for crowdfunding in the U.S. Rather than lifting the ban on general solicitation (we’ll explain that in a minute) in order to make it possible for more people to invest in American startups, the SEC proposed rules that would establish various different classes of investors, each perhaps with its own regulations. Needless to say, this move could make it more rather than less complicated for people to invest in startups, erecting new roadblocks rather than clearing away old ones.”    Click here to read more

Crowdfunding: One Size Doesn’t Fit All

In this interesting article, Forbes asks the question ‘Is the
Crowdfunding Bubble About to Burst?’ At SoMoLend, we certainly think
so!

We love that Forbes is recognizing the power of crowdfunding and the
impact it will have on small businesses nationwide. The article
references Kickstarter, a crowdfunding pioneer, as an example.
However, it’s important to note that Kickstarter only represents one
model of crowdfunding, reward-based, and it’s not the right model for every
entrepreneur seeking funding.

We’d like to take a moment to elaborate and provide some clarification
about the different types of crowdfunding: 1) donation based
crowdfunding; 2) reward-based crowdfunding; 3) equity-based
crowdfunding and 4) lending-based crowdfunding.

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Donation-Based Crowdfunding
How it works: Crowds fund a project by donating money with no reward or financial return. As of May 2012, the average donation-based crowdfunding project raised $4,076. Donation-based crowdfunding is ideal for social or political projects seeking less than $5,000.

Reward-Based Crowdfunding
How it works: Crowds fund a project in exchange for a pre-determined reward of
value, such as a t-shirt, recognition, or the finished product. Reward-based crowdfunding is great for creative artists and inventors seeking micro-loans ($35,000 or less).
Reward-Based Crowdfunding Platforms: Kickstarter, IndieGoGo, RocketHub, peerbackers

Equity-Based Crowdfunding
How it works: Crowds fund a company and then become shareholders in that company. As of May 2012, the average equity-based crowdfunding project raised $84,597. Equity-based crowdfunding is perfect for entrepreneurs seeking up to $1 million who are investor-ready. These companies should be prepared to have actively involved funders with voting rights and shares.
Equity-Based Crowdfunding Platforms: Grow VC, Circle Up, Launcht, crowdfunder

Lending-Based Crowdfunding
How it works: Crowds fund a business by making a loan and are repaid each month with pre-determined interest rate and term. Lending-based crowdfunding
(sometimes called debt-based crowdfunding) is best for entrepreneurs seeking micro-loans who are financially able to repay a loan each month.
Lending-Based Crowdfunding Platforms: SoMoLend

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Have questions about the Crowdfunding rule-making process?

CrowdCheck, Inc discusses the process the SEC has to follow in creating the rules for crowdfunding and how you can better prepare for the beginning of what will be a revolutionary new way to raise money for your business in their recent blog post.

Read on: What has to happen before crowdfunding goes legal or (how I quit worrying and learned to love the administrative process)

How Many New Jobs Will Come From Crowd Funding?

A recent report from the Kauffman Foundation stated that 65% of America’s jobs come from small business and that “A healthy crowdfunding marketplace will create a 10% increase in new businesses and 170,000 new jobs over the next five years.”

This Forbes article features an interview with RocketHub co-founder and CFO Alon Hilel-Tuch and discusses some very exciting market research. Read on to find out more: How Many New Jobs Will Come From Crowd Funding?

THE JOBS ACT: ECONOMIC BOON OR PERIL?

On February 18, entrepreneur William Pryor successfully raised a £30,000 funding round for his U.K.-based oriental rugs business, Oriental Rugs of Bath. In return for the money, Pryor offered the 36 individuals who invested in Oriental Rugs of Bath a share of the company’s equity, divvying out 10% of the enterprise’s stock in total. This entire transaction took place online through an equity-based crowdfunding platform called Crowdcube.

This type of investing is currently illegal in America — but not for long.

Read more: http://www.crowdsourcing.org/editorial/the-jobs-act-economic-boon-or-peril/13994

Subcommittee To Conduct Oversight of SEC’s Rulemaking And Priorities

WASHINGTON-The Capital Markets and Government Sponsored Enterprises Subcommittee will review the Securities and Exchange Commission’s (SEC) activities, initiatives and Fiscal Year 2013 budget request during an oversight hearing this Wednesday. 

SEC Chairman Mary Schapiro will be the only witness at the hearing, where she will likely be questioned about pending rules mandated by the Dodd-Frank Act; the SEC’s plans to implement the JOBS Act; the Commission’s oversight of investment advisers; and plans to propose new rules regarding money market funds.

Earlier this month, Financial Services Committee Chairman Spencer Bachus and Vice Chairman Jeb Hensarling wrote Schapiro raising concerns about the SEC’s plans for further money market fund reform, and Bachus is introducing legislation to improve the oversight of retail investment advisers.

The Financial Services Committee’s efforts to promote small business capital formation – which culminated in Congress’s approval of the JOBS Act – are also expected to be discussed during the hearing.

“The bipartisan JOBS Act provides the necessary framework to make it easier for startup companies and small businesses to access capital and create badly needed jobs.  As our economy continues to struggle with millions out of work, nothing is more urgent.  I am therefore hopeful that Chairman Schapiro will make timely implementation of the JOBS Act one of the SEC’s highest priorities,” said Chairman Bachus.

The JOBS (Jumpstart Our Business Startups) Act is comprised of six provisions that originated in the Financial Services Committee and relaxes some of the more onerous SEC registration requirements on small companies.

“As the SEC continues with the implementation of Dodd-Frank, it’s important for members of the subcommittee to engage in rigorous oversight to remain on top of the rule making process and to ensure it is carried out in a responsible manner.  I will be particularly interested to speak with Chairman Schapiro on the importance of conducting a thorough cost-benefit analysis of each rule to ensure the SEC does not unnecessarily impede economic growth,” said Subcommittee Chairman Scott Garrett.  “With our economy on the ropes, we shouldn’t be making things harder on ourselves by pursuing overzealous regulation that will dry up capital and stifle job creation.”

Subcommittee Chairman Garrett is the sponsor of H.R. 2308, the SEC Regulatory Accountability Act, which requires the SEC to conduct cost-benefit analysis of new rules.  The Financial Services Committee approved the bill on Feb. 16.

The Subcommittee hearing will take place on Wednesday, April 25 at 10 a.m. in room 2128 Rayburn.

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