Tze Chun found success as a small-business owner after launching an online art gallery that made buying and collecting high-quality, original art easier and affordable for young professionals.
But then she ran into a problem: The website for her gallery, called Uprise Art, just wasn’t as sophisticated as the paintings she was selling, and she needed quick access to funds for a much-needed overhaul.
Enter Bond Street, another startup that, like Uprise Art, was also focused on “customer experience” — not of art collectors, but of entrepreneurs like Chun.
She has just taken out a $75,000 loan with the small-business lender to pursue her dream of making art affordable to professionals who are just getting started with their careers and who, she says, typically view collecting art as an expensive hobby, something they should get into later in their lives.
“They put it off until they make partner or their next promotion,” she tells NerdWallet.
Chun’s original small-business plan for Uprise Art was based on a simple premise: “If you could pay $50 a month to have an original work of art in your home, you’re more likely to collect art in the future.”
The plan worked. Uprise Art’s revenue has soared eightfold in two years to half a million dollars. But the website just wasn’t capturing all the business coming her way.
It was time for a revamp. But how to pay for it?
In a way, Chun’s experience underscores a typical small-business dilemma. You’re a new entrepreneur at the helm of a small business that’s suddenly growing fast. You need money to keep up with that growth, so what do you do?
Look for a small-business loan, maybe one backed by the U.S. Small Business Administration from a traditional bank? Or maybe shoot for venture capital funding?
Chun considered those options and came to the conclusion that they would take too long.
“Bond Street was the easiest option, and less ‘expensive’ than equity since the website overhaul is really a capital improvement that we’re confident will be a profitable investment,” she says.
Surely, she could have gotten a better deal from a regular bank. Chun says her three-year-loan from Bond Street has a 16% APR, plus Bond Street usually charges a 3% fee upon successful funding, says Chief Executive and co-founder David Haber. But the company waived it for Uprise Art .
Despite the loan’s high rate, Chun says, “We feel that it’s very inexpensive money.”
The main reason is the speed and ease with which she got the loan. That allowed her to move ahead with the website revamp project quickly and without disrupting the company’s business momentum.
“The application took about 15 minutes,” she says.
The process included giving Bond Street access to the company’s bank and QuickBooks accounts, and then having a brief conversation with the lender’s chief credit officer, Jerry Weiss, who previously served as chief risk officer at Citibank.
Chun says Uprise Art “would have lost a lot of time applying for bank loans.” That was also a key motivation for Haber to launch Bond Street. He was working for a venture capital firm two and a half years ago when he started coming across companies that were “profitable, growing but struggling to raise financing.”
“They kept telling me how painful the process was,” he tells NerdWallet.
Much of that pain sprang from the fallout from the 2008 financial crash, although a lot of it was also based on a trend Haber says small businesses have been wrestling with over the past 20 years: Banks have become reluctant to lend them money.
Small-business loans have simply become less attractive to banks, because they’re not that lucrative compared to corporate loans, and because of tighter regulations, he says.
That situation created an opening for many alternative small-business lenders, which have benefitted from growing demand for short-term small-business loans and from new technologies that make it easier and more cost-effective to assess the credit risks of borrowers.
To be sure, the loans offered by alternative small-business lenders are expensive. For example, a small-business loan backed by the U.S. Small Business Administration typically charges 5.5% to 6% interest rate.
An average Bond Street loan, depending on the risk profile of the borrower, would typically charge a rate of 10% to 11%, Haber says. The highest rate Bond Street has charged is 18%, and the lowest is 6%, he adds. Each loan includes a flat 3% fee for “successful funding,” he says.
Still, Jeffrey Robinson, academic director of the Center of Urban Entrepreneurship and Economic Development at the Rutgers Business School, says, “The rates are not bad if you think of them in the period that they are being repaid.”
And they can work for some small businesses looking for quick access to cash for a specific business need. “You can’t use it for everything, but it’s certainly something that can close the access to capital gap,” he tells NerdWallet.
That’s certainly true for Uprise Art, which is getting ready to roll out a revamped site in August. The online gallery is required to make a bimonthly payment of $1,314 for three years, Chun says. But she says business is so good, she expects to pay it off sooner than that.
“We expect it will pay for itself in the next 12 months,” she says.
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Top image via iStock.