Fundera is essentially an online loan broker, one specifically designed to assist small businesses in obtaining various types of financing. Fundera makes money by matching borrowers seeking financing with lenders and receives a "finder's fee," or referral fee, from the lender when a loan agreement is made.
Fundera was started in 2014 by Jared Hecht, one of the co-founders of the messaging system, GroupMe, that was acquired by Skype in 2011. According to Hecht, the idea behind Fundera was to offer small businesses an alternative to traditional bank financing that it is often difficult to obtain. By some estimates, every year approximately 50% of small businesses are in need of some type of financing, but less than 30% of all these businesses that apply for loans are approved. The problem for many small businesses lies in standard bank business loan requirements such as requiring a company to be in business a minimum of five years.
Fundera's lending partners are, for the most part, not traditional banks, and are therefore typically less stringent in their requirements and willing to take into account other factors beyond the basic financial evaluation metrics commonly relied upon by banks. Fundera recommends that businesses applying for financing be operational for at least two years and generate a minimum of $10,000 monthly in revenues. Prospective borrowers benefit from using Fundera's loan-matching service by being able to fill out a single application that can be submitted to multiple possible lenders for consideration.
What Is Fundera, and How Does It Work?
Fundera does not make small business loans itself. It is not a lender, but a loan facilitator, providing an online platform to connect would-be borrowers seeking capital with potential lending sources. Fundera assigns each prospective borrower a personal advisor / consultant who seeks to match the needs and circumstances of individual small business borrowers with one or more of the lenders in Fundera's network. Fundera's consultants assist borrowers in exploring and evaluating different financing options. The consultants also assist with the loan application process. The consultants submit the loan application to appropriate lending partners with established relationships with Fundera and connect the business seeking financing with up to three possible lenders.
Types of Financing Available
One service provided by Fundera is to acquaint prospective borrowers with the various financing options available for small businesses. Term loans, in amounts from $25,000 up to $500,000, with loan repayment periods ranging from one to five years, are the most common type of financing for small businesses, but there are a number of other options, such as short-term loans up to $250,000, to be paid back over a period of three to 18 months.
Fundera also assists clients in applying for Small Business Administration, or SBA, loans in amounts from $5,000 to $5 million, with loan repayment periods varying from five to 25 years. Fundera claims to be able to streamline the SBA loan application process so funds may be available to borrowers in as little as 30 days.
Other possible types of financing include a business line of credit, invoice or accounts receivable financing in which a company's accounts receivables acts as collateral for the loan, and equipment financing. Fundera’s network of certified lenders include OnDeck, Can Capital, SmartBiz, Funding Circle, LendingClub and Fundation.
How Fundera Makes Money
Fundera makes a point of being very upfront and transparent about how it is compensated for its services, which it stresses are free for prospective borrowers. Fundera is paid a "finder's fee" by the lender making the loan, typically between 1.5 and 3% of the total loan amount, when a loan agreement is completed.
A loan broker being paid a fee for matching up a borrower and lender is nothing new. But what makes Fundera different is its transparency about the arrangement and Fundera's promise to borrowers that Fundera's fee does not affect the interest rate paid by the borrower. More traditional, less-transparent loan broker arrangements were often set up so that, even though the lender officially paid the loan broker's fee, the cost was actually passed on to the borrower through extra interest rate charges.