Start-Up Lendoor Aims to Use Crowdfunding for Small-Business Loans
Crowdfunding — gathering lots of small checks from individuals to finance a company or a project — is a hot area in Silicon Valley at the moment.
Now, one fledgling company in New York wants to bring the principles of crowdfunding to a dusty sector of American finance: small-business lending.
The company, Lendoor, plans to introduce a way for local businesses to borrow money from their customers and other individuals online. It is the latest effort by a technology company to pick up functions that traditionally are performed by banks.
Lendoor, which plans to announce its intentions later this week, won’t be open to investors right away. The company is waiting for the Securities and Exchange Commission to adopt a regulation that would allow virtually anyone to participate as a lender.
Crowdfunding took off after Congress passed the JOBS Act in 2012, lifting a ban on start-ups publicly asking for capital. But the full force of the law has not yet taken effect. Currently, only “accredited investors” — those with $1 million in net worth not including their primary home, or annual income above $200,000 — can participate in equity crowdfunding deals.
The S.E.C. is reviewing Title III of the JOBS Act, which would open the universe of potential investors in crowdfunding to anyone who is able to risk money in the market. Lendoor hopes the agency will adopt the regulation by the end of this year.
Now in a planning phase, the company is preparing to offer an experience that it hopes will resemble Kickstarter, a crowdfunding website on which users can find interesting projects and agree to donate money to them, sometimes in exchange for rewards. Similarly, Lendoor plans to have profiles of borrowers for prospective investors to examine.
In this way, Lendoor hopes to distinguish itself from so-called peer-to-peer lending sites, which also can connect a borrower to a group of lenders online. Lendoor hopes its experience will be rooted in the lenders’ personal interest in whatever business they are financing.
This kind of investment includes numerous risks. The company plans to automatically collect loan payments from a borrower’s account, but there is no guarantee that investors will be repaid. Further, Lendoor says it will perform only a limited amount of due diligence on the companies that list on its platform.
“We will put it out to the crowd to do their own due diligence,” said Viktoria Krane, the chief executive and co-founder, who formerly worked at the credit rating agency Fitch Ratings.
Terms of the Lendoor loans are up to the market. Companies will be able to ask for a particular amount of money at an interest rate that they think will give the proposal a good chance of being funded, Ms. Krane said.
The company could theoretically open for business before the S.E.C. adopts rule changes, but Ms. Krane said she wanted to attract the broadest possible swath of investors.
“None of the small-business owners I spoke to said it would make any sense to be soliciting their loans to accredited investors,” she said. “Accredited, sophisticated investors require much larger returns in order to take those type of risks.”
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