Able Lending, Inc.

Online Business Loans: 11 Options for Working Capital & More

Small businesses have never had more convenient access to capital. From startup funding to working capital to long term SBA loans, the number of companies offering online business loans has grown tremendously over the past few years. Applications are a snap, and approvals are made in record time. Plus, the costs of many online small business loans are competitive with traditional lenders.

Lender Commits $5 Million to DFW Small Businesses

Able Lending Inc., a national low-cost alternative lender to small businesses, announced on Monday a $5 million commitment to an estimated 20 small businesses in Dallas-Fort Worth.


Alternative lending: friends in need

Small and untested even by the standards of this nascent sector, upstarts such as Able shine a light on the opportunities and challenges facing fintech companies which say they are filling the void left by a retreating banking sector.

Small businesses are risky, says Mr Davis, “but if we can share risk with friends and family, we can get a senior lender to come in and lend at a lower rate”. The key is financial engineering rather than nifty algorithms, he adds. “If anyone tells you that technology drives low interest rates they’re lying to you. It’s not magic, it’s simply structure.”


Able is One of the 50 Austin Startups to Watch

The Austin-based small business loan platform comprises entrepreneurs and the family and friends they recruit to fund their businesses. The backers from their network front 25 percent of a business loan at an interest rate of their choosing, and Able funds the rest.

As today’s business icons shift from Wall Street wizards and corporate CEOs to Sand Hill Road venture capitalists and tech investors, the sentiment is trickling down to everyday folks. They also want to back people they believe in with hopes of realizing big returns. And Able wants to do for loans what crowdfunding has done for donations and sites like AngelList have done for equity investments.

Able, which opens its doors nationally today, is the latest entrant to the online lending market. But in a sea of look-alike lenders, Able stands out, thanks to a model that blends elements of crowdfunding and online lending. Able founders Evan Baehr and Will Davis call it “collaborative lending.”

Where Able's model starts to look different is that after a borrower gets approved for a loan, they have to go out and find friends, family and other acquaintances to cover 25% of the loan. Typically, those are three to five people who are already familiar with the business seeking a loan. Once those friends and family lenders are on board and vetted by Able, the business gets its loan in a lump sum and the lenders -- friends, family and Able -- get paid back on a monthly basis with whatever rate of interest is agreed on.

Kirsten Dickerson knew her company could change lives. In 2011, Dickerson launched Raven + Lily, an ethical fashion and lifestyle brand, to produce beautiful goods and give secure jobs to at-risk women. But she struggled to get approved for a loan from traditional banks — even local banks. “I found that local banks were moved by my story, but had too much red tape to support a company that was still at an early stage and functioning outside of the norm,” she says.

Able announced a partnership with Garrison Point, which will underwrite Able, which is lending to Austin’s small and medium sized businesses. This is the first time the company is not lending out of its own account. The financial technology startup made the announcement during South by Southwest at an event with Floodgate Venture Capitalist Mike Maples Jr., one of the company’s investors and Josh Hare, owner of Hops + Grain Brewery, an Able customer.

When the opportunity to buy an established hair salon fell into Hayley Groll’s lap in June, she quickly took stock of her financing options.

The veteran hairstylist was not approved by the online lender she initially contacted. Then she found Austin-based Able, which bills itself as a “collaborative lender.”

Within three weeks, Groll had a three-year, $105,000 loan, enough to buy Shag Salon and renew its 1,850-square-foot commercial lease for a decade. Even better was her interest rate of 9 percent.

The brainchild of Harvard MBAs Will Davis and Evan Baehr, Able offers business owners one- to three-year loans of $25,000 to $250,000 at 8 to 16 percent interest—but with a twist: Borrowers must raise the first 25 percent of the sum from friends and family.


Able’s New Approach to Collaborative Lending

Launched in July, Able’s mission is to “empower main street entrepreneurs” like Hayley, to get a loan to build their businesses when traditional lenders have prohibitively high borrowing standards or sky-high interest rates.
Able offers a lower-cost loan by sharing the risk with backers that are sourced by the entrepreneur. In essence, Able amplifies what small business people are capable of doing with loans from friends and family: Applicants must source 25 percent of the loan amount themselves, and then Able provides the other three-quarters and manages the interest and repayment. Annual percentage rates for Able loans start at 8 to 16 percent, where other private lenders might charge 30 percent or more to the same borrower.


A Case of Uncreative Destruction

Messrs. Baehr and Davis want to create businesses that do the opposite. Next on their agenda: Able, a collaborative small business lender that they plan to launch in the fall. Small business credit has dried up, says Mr. Baehr. "Since 2008, the number of loans to small businesses under $250,000 has decreased 92%," and during the same period more small businesses were destroyed than created. Thanks to banking regulations, he says, small regional banks are "no longer really able to take these bets on small business. And if they do take a bet that's deemed too risky, their state regulator or their federal regulator will give them the stink eye, so to speak."

Able intends to fill in the gap, and unlike crowdfunding (usually based on donations) or angel investors (who take equity), it is based on small businesses taking on moderate debt. Messrs. Baehr and Davis say they have a new model of pricing risk, one that takes into account social-media data, like Yelp reviews and Facebook likes. It's the kind of information, says Mr. Baehr, "that gives us insight that a traditional bank just wouldn't look at." Critically, to quality for a loan through Able, a business must get its "fans"—family, friends and customers—to cover the first 25% of the loan. Messrs. Baehr and Davis say that they have already used the Able model to make more than 40 loans, ranging from $5,000 to $150,000, to businesses including a hair salon, a landscaping company, a bike shop and a soap company.

"If Able works," Mr. Baehr says, "and we're able to bring billions of dollars of loans to the 'Fortune Five Million,' it is democratizing innovation and moving some of that power away from Washington."

Able will help to provide credit to smaller entrepreneurs using a method to price risk through what they’re calling “collaborative underwriting.” Though the name sounds like it might be leveraging the so-called “wisdom of the crowds” for something like peer-to-peer lending, that’s not quite the case. Instead, the post says, they’re “innovating on the information layer, not simply the capital layer.” In other words, they’re using the crowd’s wisdom to price the loans, not entirely fund them.