Virginia-based alternative lender StreetShares, founded in 2013, takes a unique approach to peer-to-peer lending by tapping into the power of community. Using a model that the company calls “affinity-based lending,” StreetShares matches borrowers with a group of investors with similar characteristics, be it location, gender or status as a U.S. military veteran.
Doing so takes some of the risk out of lending, reasons Mark Rockefeller, chief executive and co-founder of StreetShares. The borrower feels a responsibility to those who put up the funds. “You, in essence, tap into positive peer pressure,” he says, “and the borrowers are less inclined to be late on a payment or default on that loan.”
Since its inception, StreetShares has funded more than 400 loans and now provides approximately $1 million a month to small-business owners. The company offers three- to 36-month term loans from $2,000 to $100,000. With annual percentage rates of 8% to 40%, it offers competitive rates in the alternative lending market.
StreetShares is best for:
- New businesses.
- Entrepreneurs who are military veterans.
- Businesses with a unique backstory.
Do you qualify?
- Do you have a personal credit score of at least 600?
- Does your business generate at least $25,000 in annual revenue?
- Have you been in business a year?
Additional qualifications:
- No bankruptcies in the past three years.
- No current tax liens or collections (without proper documentation).
- StreetShares does not lend to businesses in North Dakota or South Dakota.
| The typical StreetShares borrower | |
|---|---|
| Personal credit score | 705 |
| Time in business | 4.5 years |
| Annual revenue | $700,000 to $800,000 |
Reasons to use StreetShares
Community-based lending: Connecting the borrower to investors who have similar passions or interests is a selling point for StreetShares.
Entrepreneurs who are military veterans, in particular, have benefited from the company’s affinity group approach. Rockefeller, a veteran himself, recalls seeing payday lenders lining the streets around military bases, preying on young service members. When starting his company, Rockefeller aimed to help veterans finance their small businesses and avoid similar lending traps, partnering with organizations like the American Legion and the National Veteran-Owned Small Business Association. Now, more than 60% of StreetShares’ borrowers are former service members.
But StreetShares has expanded beyond veterans: It has successfully matched female business owners with female investors and a business owner in Vermont with members of her own community, and it is working on establishing partnerships with Latino organizations to help increase lending to that minority group.
Access to capital for new businesses: Finding loans for startups with low revenue can be tricky, but StreetShares offers loans to companies that have been in business for just one year and pull in $25,000 in annual revenue. But if you’re at the six-month mark and already have $100,000 in revenue, you’re eligible to apply.
The reason StreetShares can lend to new businesses that don’t have much revenue is that it focuses primarily on cash flow. Rockefeller says StreetShares uses a combination of traditional and alternative underwriting practices but believes cash flow is the single best indicator of whether someone will be able to pay back a loan.
The ability to share your story: During the pitch process, you have the opportunity to highlight your company, tell your story and persuade investors to bid a monetary amount as well as an interest rate they think is appropriate.
When your auction is complete — anywhere from a few hours to a few days, depending on how quickly you request funding — StreetShares collects the lowest interest rates of the bids that add up to the approved loan amount and bundles them into a single rate that you can accept or decline. The more bids, the lower the interest rate. To have some skin in the game, StreetShares always backs the first 5%.
No prepayment fee: Borrowers can pay back term loans early, with no prepayment penalties. If your company is young, there’s a good chance you’ll alter your financing plan as your business changes, says Peter Somerville, director of investor relations. “We’ve talked to business owners who are being choked to death by prepayment fees,” he says. Regardless of the length of your loan, StreetShares offers the flexibility of paying it back immediately.
| StreetShares at a Glance | |
|---|---|
| Type of product | Term loan |
| Cost of funding | 8% to 40% APR |
| Approval time | 1 to 5 days |
| Loan amount | $2,000 to $100,000 |
| Loan term | 3 to 36 months |
Where StreetShares falls short
Limited reach: Fueled by market demand, StreetShares applies for permission to lend on a state-by-state basis, and at the moment it does not provide loans to businesses in North Dakota or South Dakota. If you operate a sole proprietorship, you can’t use StreetShares unless you live in California, Florida, Virginia, Georgia or Texas (as of March 2016). However, the company plans to expand its reach to sole proprietorships in 2016.
There are also a few industry limitations. StreetShares does not lend to construction contractors and those who will use the loan to flip homes or other real estate (though real estate management is OK). Nor does it lend to law firms or tax preparation or accounting firms — unless the business belongs to a CPA.
Funding limitations: Though StreetShares offers loans up to $100,000, the maximum amount you can qualify for is 20% of your annual revenue. If you make $200,000 a year, that limits you to a maximum loan of $40,000. You may need to look elsewhere to get financing for big projects, such as a major expansion.
Weekly payments: You’ll pay back your loans with automatic weekly deductions from your bank account. Although some borrowers may find that convenient, others looking for semi-monthly or monthly payments may struggle with the lack of flexibility. If you have uneven cash flow, you may also find this repayment option inconvenient.
Find and compare small-business loans
If StreetShares is not the right fit, NerdWallet has created a comparison tool of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, among other factors, and arranged them by categories that include your revenue and how long you’ve been in business.
Jackie Zimmermann is a staff writer at NerdWallet, a personal finance website. Email: jzimmermann@nerdwallet.com. Twitter: @jackie_zm.
To get more information about funding options and compare them for your small business, visit NerdWallet’s small-business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
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