Partners with Internet startup
The recent proposition to small business owners by the State Journal-Register sounded a bit like a come-on to buy time-share condos.
Come on down to the newspaper and get a free lunch, publisher Clarissa Williams urged in a column published March 3 on the paper’s editorial page. Besides eating for free, you can learn how to win $10,000, plus we’ll tell you about a new opportunity to improve your business. Seating is limited, so make reservations ASAP.
“Dream big when it comes to growing your business,” Williams enthused. “Together we can make our community stronger.”
The pitch at the ensuing March 10 luncheon was bolstered by the presence of Mayor Jim Langfelder and Karen Davis, the city’s economic development director, according to a follow-up story published after the event where the newspaper outlined a loan program in which a company called Herio Capital sets up loans with interest rates that are… Well, the interest rate wasn’t made clear, according to sources who attended the luncheon. Williams could not be reached for comment, nor could officials with Herio Capital, an Internet-based lending outfit based in New York. But if trends in the burgeoning get-loans-online industry hold true, businesses might be better off getting cash advances on credit cards.
The program promoted by Williams is a partnership between the SJ-R, Herio Capital and Propel Digital Services, a marketing arm of GateHouse Media, the newspaper’s parent company. Prospective borrowers are supposed to contact the newspaper to get the ball rolling. Launched last year, Herio Capital is one of scores of Internet lending companies that promise easy access to cash for borrowers who might find it difficult to obtain loans from a bank. In the case of Herio Capital, borrowers with FICO scores as low as 500, considered a sign of a poor credit risk, can borrow as much as $100,000 if they’ve been in business for one year and have annual revenue of $120,000, according to the company’s website, which says that the application process takes just 10 minutes.
Herio Capital is headed by Sherif Hassan, a former executive at OnDeck Capital, another Internet lending company and one of the few that is publicly traded. According to a December story published in the Wall Street Journal, the average interest rate for an OnDeck loan is 43 percent, down from 66 percent in 2013. “PBS Newshour” in a 2014 story reported that the average interest rate for online lenders is 50 percent. Loans are marketed as a way for business owners to raise quick cash to buy inventory or fund operations, including payroll. OnDeck and other publicly traded Internet loan companies have not fared well on the stock market. OnDeck’s stock has plummeted from $24.15 in 2014, when trading began, to $7.55 this week. Lending Club, another Internet lender that also went public in 2014, has seen its stock drop from $24.69 to $8.05 this week.
On its website, Herio Capital says its loans are “fairly priced” and boasts that it beats the competition.
“Our clients consistently get approved for larger loan sizes, longer terms and more favorable rates than they do from merchant cash advance providers,” the company says.
In a recent interview with WFMB radio host Sam Madonia, Hassan said that Herio Capital isn’t out to compete with banks.
“We try to fill a need that banks aren’t filling,” Hassan said. “We consider ourselves like a national, kind of, online community lender.”
In Springfield, however, there is an alternative to online lenders.
Since September, Justine Petersen, a nonprofit organization based in St. Louis, has been offering loans to Springfield businesses that would likely be rejected by banks. The organization named after a deceased St. Louis social worker is the nation’s largest microlender that does business under the auspices of the U.S. Small Business Administration, according to the organization’s website. There’s an employee at city hall to take applications.
Banks have put up $1.7 million for Justine Petersen to lend in Springfield, and $200,000 so far has been loaned to 38 business in amounts ranging from $1,000 to $20,000, said Galen Gondolfi, spokesman for the organization. There have been no defaults, and the approval rate is 70 percent, he said. The interest rate ranges from 8.3 percent to 14 percent, with a goal of building credit so the businesses can borrow from banks, he said.
“We lend money when a business is not in a position to borrow from a mainstream lending institution,” Gondolfi said. “To be honest, it’s been incredibly successful.”
While the SJ-R publisher has noted the presence of city officials at the luncheon where the newspaper’s foray into lending was launched, Langfelder said that city isn’t endorsing the program. Meanwhile, the contest with the $10,000 prize appears to have fallen behind schedule.
Small business owners are supposed to enter by submitting essays stating how $10,000 would help them grow their business, with judges considering emotional appeal, public relations value, impact on the community and potential for success of ideas contained in essays. In her March 3 column, Williams wrote that the winner would be announced on March 24. However, that date has been pushed back to April 6, according to rules posted on the contest website.
