Every day, says Chicago City Treasurer Kurt Summers, a small business owner comes into his downtown office asking for help. The request is almost always about accessing capital. Last month, Summers announced another tool that will strengthen that kind of support for entrepreneurs looking to tap funds online.
Early on in his tenure as city treasurer, Summers toured all 77 of Chicago’s neighborhoods, and those visits generated around 200 ideas, Summers says. Some 40 percent of those ideas had to do with access to capital.
The city already had some tools to address the issue. In 2012, Chicago created a revolving loan fund to finance more CDFIs (community development financial institutions) to make microloans (between $500 and $50,000) at affordable interest rates to small businesses in underserved neighborhoods. The fund has helped expand the number of CDFI microlenders in the city. But in recent years, CDFIs and other lenders have had to compete against the sudden rise of online small business lenders, some of which are predatory and lend at exorbitant interest rates that aren’t always transparently advertised.
In the Federal Reserve System’s 2016 Small Business Credit Survey of Employer Firms, only 46 percent of small businesses reported being satisfied with online lenders, compared with 77 percent reporting satisfaction with a CDFI. The number one reason small businesses were dissatisfied with online lenders: lack of transparency. The number two reason: high interest rates.
That’s why Summers recently joined Chicago-area CDFIs, Fundera and the Small Business Majority to launch SimpleGrowth, a new online platform that puts CDFIs and other responsible, mission-driven lenders at the end of the online lending rainbow.
“Chicago is a city of neighborhoods, connections and resources. We wanted people to know there are these incredible [small business lending] organizations right here in their backyard,” says Lindsay Mueller, Midwest director at Small Business Majority, a national small business advocacy organization that also provides education and resources for entrepreneurs. Small Business Majority worked with Accion Chicago and Fundera to build the platform, and will continue to manage the platform day to day.
“The more volume on this platform, the fewer businesses going to predatory lenders,” says Summers.
Built using Fundera’s matchmaking technology, SimpleGrowth takes businesses rapidly through a series of questions about revenues, time in business, credit score, sector, location and capital needs, in hope of finding one or more matches with one of the approved lenders.
At launch, three lenders, all CDFIs, offer small business loans through the platform: Accion Chicago, LISC Small Business and the Women’s Business Development Center. With those three, the platform is currently capable of offering small business loans from as small as $500 up to $500,000. The lenders commit to reviewing the applications, requesting additional materials and deciding on an offer within five business days. The plan is to bring on more mission-driven lenders as the platform’s popularity grows and as needs and loan products evolve.
Crucially, for those who do not qualify when applying, the platform instead provides matches for an approved Chicago-area small business assistance provider that can “coach” them, and provide advice and support so that the entrepreneur has a better shot at qualifying for a loan the next time around.
“Having both in one place — access to lending and access to coaching across all the multiple options available — is much more powerful than just having us listed along the Fundera site generically,” says Brad McConnell, CEO of Accion Chicago. “We think it’s a much more attractive way to entice borrowers to work with responsible lenders.”
Funding to build the platform came from JPMorgan Chase Foundation, with additional support from Chicago Community Trust and Wells Fargo’s Diverse Community Capital Program. Over time, the plan is to have the platform sustain its operations via referral fees from participating lenders. No public money was used directly to build the platform.
“It gives a lot more flexibility,” says Summers. “It’s not tied to an individual institution, and it’s not tied to a government body.”
All parties agree, marketing is the biggest challenge.
“As a small business seeking capital in Chicago, if you just do a Google search, you will be more likely to find some much more capitalized organization with more marketing resources that has a higher search ranking,” says McConnell. “What we need to be able to do is be better at competing with that by getting more eyes on a link that will get you to responsible capital.”
Small Business Majority is betting on a multipronged approach to beat other online small business lenders. “For us it really is digging into the neighborhoods, working with local publications to highlight small business assistance centers, to show it’s not just a lending platform,” says Mueller. “We also do on-the-ground outreach through chambers of commerce and other associations. And word of mouth goes a long way.”
The group is leaning on the city treasurer, his office and the bully pulpit it provides to spread the word — and he is game for the challenge.
“It’s our job in the treasurer’s office to leverage our own platform to be able to help expose SimpleGrowth to as many Chicago businesses as possible,” Summers says. “It’s the biggest place we can be helpful, I think.”
Oscar is a Next City contributing writer, and was a Next City 2015-2016 equitable cities fellow. A New York City-based journalist with a background in global development and social enterprise, he has written about impact investing, microfinance, fair trade, entrepreneurship and more for publications such as Fast Company and NextBillion.net. He has a B.A. in Economics from Villanova University.