Banker's Guide to New Small Business Finance: Venture Deals, Crowdfunding, Private Equity, and Technology, + Website

Chapter 7Funders and Lenders—Online Capital Providers

Barely more than a couple generations ago, the idea of getting financing for a small business was confined to a fairly short list of prospective sources. In the years that preceded the concept of junk bonds, equity investors generally tied their money up in a combination of federally insured bank deposits, U.S. government treasury bonds, blue-chip stocks, or AAA-rated corporate bonds.

Likewise for those small businesses who could qualify for debt financing, there were commercial banks so long as the business owner resided in a county that had a bank willing to make business loans. In those days, many states restricted banks to servicing one county, or in some instances required they be confined to operating only in their home states.

By and large, these archaic rules kept banks focused on their home markets—and relatively small. Growth for the bank was a matter of either taking customers from other banks or being fortunate enough to be situated in a high-growth market with a surging population and economy.

Accordingly, small business owners didn’t have many options, given that the number, size, and aggressiveness of local banks was closely aligned with the financial vitality of their local economies. Other than banks, financing options were few unless they were connected to individuals with the means who were willing to bankroll the businesses or buy in as partners.

INNOVATIVE FUNDING MARKETPLACE

Today, small business lending ...