Distraught and disappointed by the U.S. banking system, he decided to help himself and others like him.
The owner of a chain of successful gyms is now also the co-founder and U.S. managing director of Funding Circle and does not need any banks now.
Here’s how it all came about. In 2007, he applied for a loan to expand his business. But even though he had a business that was profitable and had a good enough credit score, he faced rejection after rejection. After he was told off for the 96th time, he decided to take things in his own hands.
“Many small business owners struggle to get loans when their personal credit dips. Most banks simply won’t spend time unless someone has a very high credit score, as well as checking many other boxes,” says Sam Hodges.
And that is exactly what happened to Hodges. But he was not going to give up. The banks had nothing to offer to small business owners, so he decided he would create a network that did – and he did just that.
He launched an online marketplace called Emergence Lending Network – a peer-to-peer lending network for small business owners to borrow money directly from individual or institutional investors.
His idea took off. There was definitely a need for it.
The Emergence Lending Network has now merged with the U.K.-based Funding Circle and expanded.
All a business owner looking for a loan has to do is go through an online eligibility test. Funding Circle’s own underwriters go through a verification process to ensure the applicant is eligible to apply for a loan by looking into data including credit score and profitability, as well as things as small as the quality of social media presence and Yelp reviews, etc. Then they are given a grade and loan terms, which help lenders decide which businesses are better to lend to.
David Nayor, co-president of BoeFly, a small business loan marketplace, cautions, “The borrower has to be very careful and ask the loan issuer to calculate the annual percentage rate for them. I would say you should only [consider alternative lending] if you’ve exhausted all your other options to get lower payments that won’t leave your business tapped out,” he says.
Funding Circle has been a grand success. It has processed loans totaling more than $750 million since 2010 in the U.S. and U.K. markets, and expects to cross the $1 billion mark in 2015.