It’s an exciting time in entrepreneurship for financial services firms, and the Credit Junction is a shining example of how innovation can bring tangible benefits to an economy still shaken by the recession.
For a small business owner, “free time” doesn’t really exist. So navigating the confusing process of looking for a loan is a significant barrier to growth, making it harder for these businesses to create jobs. But thanks to innovation, accessing capital is becoming easier than ever before.
The Credit Junction is one company that is embracing this trend. Founded in 2014, the Credit Junction aims to fill a niche in the market that has been tough for other lending startups to reach.
Typically, small businesses have only a few choices when they need a loan. Large banks will only listen if the deal is large enough to justify the time needed to process and underwrite the loan. New lending startups such as Kabbage and OnDeck have sprung up to serve the other end of this spectrum, but the maximum loans they offer are not enough for many businesses — usually capped at around $250,000.
The Credit Junction fills the gap between small-scale lending startups and large banks, offering loans anywhere from $250,000 to $5 million to companies that need them. The Credit Junction’s main clients are larger than mom-and-pop businesses — providing supply-chain financing to manufacturing firms, for example.
Small businesses have been especially squeezed recently thanks to the massive amount of Dodd-Frank financial regulations, which has made it harder for community banks and credit unions to stay in business.
“As the GAO reports, regulators, industry participants, and Fed studies all find that consolidation is likely driven by regulatory economies of scale — larger banks are better suited to handle heightened regulatory burdens than are smaller banks, causing the average costs of community banks to be higher,” concluded a recent study by Harvard researchers. As paperwork and regulatory compliance costs build up, small businesses have less time to gather the necessary funding in order to grow.
This problem has been well documented. “The major constraint limiting the growth, expansion, and wealth creation of small firms — especially women- and minority-owned businesses — is inadequate capital,” concluded a 2013 report by Alicia Robb, a researcher at Marin Consulting, LLC.
That means Credit Junction’s efforts to increase access to capital could have a powerful impact on the economy.
Credit Junction focuses on asset-based lending, prioritizing collateral over some of the new marketplace lending schemes. Because the company offers several types of loans, clients have the flexibility to choose the repayment plan that works best for their business.
Speed and transparency are essential to the Credit Junction’s application process. Personalized service helps to facilitate a relationship built on clear communication.
Writing in Forbes, technology expert Dan Woods noted that the Credit Junction doesn’t “just collect information at the time of underwriting, but gather[s] it in a continuous flow.” This allows for a more accurate picture of each client, ensuring that companies aren’t rejected based on a typical FICO (credit score) check. Instead, the Credit Junction uses a more advanced technological process to understand what each small business needs.
Credit Junction founder Michael Finkelstein spent time on Wall Street, got his MBA from Stanford and has been an entrepreneur much of his life. His experience helped the Credit Junction raise funding early and grow quickly.
Recently, the Credit Junction has been focusing on building awareness with groups such as trade associations and state and local groups that can spread the word to their members about this new way to get financing. The Credit Junction also partners with other startups that provide loans to small businesses, often taking on the deals that are too big for them to handle.
“Small business owners are just incredibly busy,” said Sergio Rodriguera, the Credit Junction’s chief strategy officer. “There’s just not a lot of time to understand the various resources that are out there.” Rodriguera said the company has been participating in town halls and forums and meeting with groups around the country to tell them about what The Credit Junction can offer.
Just recently, the Credit Junction pledged $100 million in loan availability to small businesses that were part of the Houston Minority Supplier Development Council, a nonprofit that helps minority-owned businesses in Houston. “They know better than anybody that these small businesses are having trouble accessing capital,” said Rodriguera.