Kayak for small business loans: Fundera is helping growing small businesses tap into non-bank alternative lending
A Q&A with Fundera co-founder and CEO Jared Hecht. The New York City-based startup, which is a marketplace that connects small businesses with alternative (non-bank) growth funding sources, announced the closing of a $3.4 million Seed funding round in early February. Investors are a group of heavyweights that include Khosla Ventures, First Round Capital, Lerer Ventures, and SV Angel, along with Angel investors including Strauss Zelnick, Rob Wiesenthal, David Rosenblatt, and David Tisch. It was founded in 2013 by Rohan Deshpande, Andres Moran, and Hecht, who previously founded GroupMe.
SUB: Please describe Fundera and your primary innovation.
Hecht: Fundera is an online marketplace that matches and connects small business owners with the best funding provider for their business with a primary focus on non-bank alternative lenders. Traditional banks no longer meet the loan needs of small business owners, and regulations are overly tight. Because of this, an entire industry of non-bank lending options has sprung up, but the space can be confusing and difficult to navigate. Fundera is bringing transparency to this industry, and has created a place where small business owners can easily and safely acquire loans needed to grow their business.
SUB: Who are your target markets and users?
Hecht: The Fundera marketplace is for small business owners with established businesses. These small business owners cover a variety of industries, such as restaurants, auto-body shops, spas, salons, dental and medical practices, retail stores, or boutiques.
Hecht: Fundera is unique because it is not a direct lender, it’s a marketplace that brings transparency to the non-bank alternative lending industry. Small business owners fill out one common online application form and are instantly pre-qualified and matched with trusted lenders that have been vetted by Fundera. Lenders only reach out to a borrower at a small business owner’s personal request. No information is ever sold or given to third parties without the borrower’s knowledge or consent. There are an endless number of alternative lenders out there, which is why Fundera is necessary to help navigate the space—think Kayak for small business loans.
SUB: You just announced that you’ve raised $3.4 million in Seed funding. Why was this a particularly good time to raise outside funding?
Hecht: Alternative lending is really in the first inning as an industry, so it was a great time to raise capital to build our business. Through technology we can bring transparency and efficiency to the industry, ultimately expanding the market.
SUB: How do you plan to use the funds?
Hecht: We plan to use the funds to build a trusted community that can be a resource for small business needs at every stage of their business. Content and education is also a huge component to bringing transparency to this industry, and we are focusing on facilitating loans and creating quality and informative content for small business owners.
SUB: What was the inspiration behind the idea for Fundera? Was there an ‘aha’ moment, or was the idea more gradual in developing?
Hecht: I was inspired to create Fundera two years ago when I saw my cousin, Zach, who owns a very successful chain of restaurants in Ohio called ‘Fusian,’ struggling to get a loan from a bank. I was shocked when he told me that he had visited several banks, all of whom denied his request for a loan simply because they’d been in business for less than five years and restaurants are considered a ‘risky industry.’ Zach isn’t the only entrepreneur who has had this problem. Every year, more than 40 percent of small businesses seek funding to grow, but less than 20 percent of them receive the capital they need from banks. The numbers are astounding, especially considering the important impact small businesses have on our economy. I knew there had to be a better way.
SUB: What were the first steps you took in establishing the company?
Hecht: Research. I spent a lot of time sitting on the sidelines learning about this industry and speaking to the many players—from small business owners like my cousin, to direct alternative lenders in the space.
Hecht: We think there is a deep need for a transparent source in the alternative non-bank lending space, and Fundera can make this the ‘era’ of small business funding.
SUB: Do you have plans to seek additional outside funding in the near future?
Hecht: We don’t have any plans for additional funding at this time.
SUB: What have the most significant challenges been so far to building the company?
Hecht: The biggest challenge is building awareness amongst small business owners. So far, we’ve had a lot of progress and both borrowers and lenders love the marketplace. Alternative lending can be a difficult space to navigate for a borrower and not every lender has the best intentions. Fundera offers a safe space where small business owners can go to find trustworthy, reliable lenders.
SUB: How do you generate revenue or plan to generate revenue?
Hecht: Fundera takes one-to-three percent of the total loan amount, and is only paid when a loan is successfully funded. We’ve found many lenders are willing to cover this cost for the borrower so it ends up being a free service for the small business owner.
SUB: What are your goals for Fundera over the next year or so?
Hecht: Over the next year or so we’d like to continue to build a strong network of reliable lenders and successfully facilitate as many loans as possible to help small businesses grow.