Bypassing Bank Loans: Online Lending Sources

By Sean Lechowicz | Posted: 10/30/2013 2:11PM


For small business owners and start-ups, the online money lending market is becoming crucial in keeping their business aspirations alive. With the U.S. government's “Jumpstart Our Business Start-ups Act” (JOBS Act), which encourages online funding, in full swing, 2013 seems to be an ideal year to kick off a small business.

Through the JOBS Acts, business owners can raise up to $1 million in equity investments publicly through social media sites without having to register the shares for public trading.

Another key element of The JOBS Act is its focus on crowdfunding sites.  Crowdfunding allows business owners to solicit public donations where investors donate just to donate or via a collaborative goal based process in return for products, perks or rewards, or by making those who donate shareholders.

Crowdfunding is turning into a viable way to secure funds for start-ups. The most well known crowdfunding site is Kickstarter. In statistics released yesterday, the site says that they have funded over $800 million for projects this year, with a success rate of 43.84%.

Earlier this year, woodworker and photographer Elvis Halilović started a Kickstarter campaign to raise money to produce a line of wooden pinhole cameras he and his brother created. The incentive to pledge: pledgers got their own pinhole camera. While Halilovic only sought to raise $10,000, his project received $109, 391 in pledges.

Other woodworkers have found success using Kickstarter., an Ontario, Canada, manufacturer of lacewood, ebony, zebrawood and bamboo wood-framed sunglasses, used the site to raise $15,000 to develop and launch a new line. Robert Campbell, “The Joiner’s Apprentice,” used KickStarter to fund tool purchases for his woodworking projects. He received over $5,900 in funding.

This method clearly works. And now, start-ups will be better protected from scams, as the Securities and Exchange Commission has approved of a 585 page regulation on crowdfunding investors.

The regulations, which includes a $1 million cap for investors, has been both praised and maligned by crowdfunding sources. Some believe that it's a giant step forward in legitimizing this method of money borrowing in government, but other feel it isn't enough. 

Detractors suggests companies raising capital should instead focus on direct public offerings, or DPOs, that work under existing law. Filed with states and screened by state-level securities regulators, DPOs don't discriminate against the non-wealthy and allow public offerings of securities to all.

But, while effective, crowdfunding isn't the only way to secure funds for a small business. Online loans are another option. Famed for giving over $2 billion in personal loans, Lending Club is planning to expand into the small business loan game.

Using this method, Borrowers post a request for funds and plead their case to lenders. If a lender saw promise in the case, they could put money into part or all of the loan. Then, Lending Club runs credit checks of aspiring borrowers for the lenders, keep an eye out for fraud, collect and distribute monthly payments and keeps some money for itself.

Even online payment service PayPal is throwing its name in the hat. PayPal Working Capital offers existing PayPal merchants with a healthy cash flow the option of borrowing as much as 8% of their annual PayPal volume up to a maximum of $20,000. The hook in the service: the cost to the entrepreneur is presented as a single number, void of set up and prepayment fees.

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About the Author

Sean Lechowicz

Sean Lechowicz is a writer for the Woodworking Network and Closets Daily. He can be reached at

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