Between small loans needed to pay salaries in a pinch and those raised by entrepreneurs looking to open a new store in a franchise or move to a bigger office, small businesses often need a bit extra capital to expand.
Despite when small businesses have reliable income, lenders want to charge high interest rates on loans that banks aren’t interested in — a few thousand dollars for new equipment, inventory, or services the company needs — leaving small businesses with high rates and only a few months to pay.
Sequoia-backed Behalf wants to fill that niche, offering small businesses loans of about $10,000 with interest rates “close to what someone with good credit would pay on their credit cards,” according to Behalf CEO Benjy Feinberg. Looking at factors outside of just a business owner’s credit score (like, “does this business make money?”), Behalf decides whether a loan is likely to be paid back. If things look good, Behalf works with the small business to determine the optimal payback term for the small loan.
Behalf can take on this extra risk while still offering lower rates because of those other factors it looks at and because it handles paying vendors for the things the loan is intended for — so no funds can be misspent. Vendors they work with benefit from the arrangement, as they bring in more sales without negotiating loans or payment terms with myriad small businesses.
With $10 million in funding, Behalf can afford to make quite a few $10,000 loans, and its ~120 day payment terms mean that it’ll have that capital back (and then some) to offer rather quickly after giving it out. Of course, that’s assuming its risk model works out at scale. If it does, I assume we’ll hear about them raising a bigger round sooner rather than later.