Episode 5 of The Wall Street Journal’s “Financial Inclusion in America” video series hit a familiar note for our staff. The episode shares the stories of two entrepreneurs – one needing expansion capital to scale her business, and the other needing a quick loan for equipment repairs.
Both business owners find themselves needing a “small loan” (less than $100,000), and are forced to consider online lenders when their bank isn’t able to lend them the money.
“Starting a business is hard,” says the first entrepreneur in the video, Dana Donofree. “But out of all those challenges to start up my business, I never expected that my largest challenge would actually be to scale.” Donofree was able to scale her business with funds from an online lender, but ended up paying about $10,000 to borrow the $35,000 she needed.
The second entrepreneur in the video, Taria Avery, needed money to pay for van repairs for her mobile pet grooming business. When looking for funding, she came across online loans, but couldn’t justify the fees after digging into the fine print.
“As a small business, there’re unexpected things that happen,” says Avery. “It’s important you have access to capital for that small loan size because it really could be the difference between staying open and shutting your doors.”
CDFIs: An Alternative to Online Lenders:
When the narrator spells out “C-D-F-I,” I found myself nodding and smiling. Those are four letters I spell out all the time – to investors, to community partners, and of course to entrepreneurs. As a certified CDFI (Community Development Financial Institution), Pathway Lending specializes in exactly the types of loans the business owners in this video needed.
At Pathway Lending we help our clients improve the overall health of their business, and in many instances we’ll focus on improving cash flow by restructuring existing debt. For example, we can use one of our term loans to pay off an expensive loan from an online lender. We get the appeal of online lenders – the approval process is fast, but as we mentioned in our article “Guide to Online Business Loans,” easy does not equal cheap.
By restructuring this online lender debt and putting the payments on a reasonable repayment plan, the client will typically see significant improvement in their overall monthly cash flow.
With an explanation of potentially predatory practices from some online lenders, and insights from industry leaders like OFN’s Lauren Stebbins, we recommend any small business owner looking for funding watch this video. Click here to watch “Small Business in America: Costly Credit and Growth” on wsj.com.
Here at Pathway Lending, we’re thrilled to see the Wall Street Journal sharing our industry and how CDFIs are strengthening the economy on a national platform.
Tennessee Regional Director of Lending