Lending Help to Small Businesses

This post originally appeared on postandcourier.com

Hunter Stunzi and Chris Mettler are a rare breed of young entrepreneurs who actually can thank the recession for their newfound venture.

Stunzi, now 31, graduated from the College of Charleston in 2007, just as the largest financial crisis in modern times crippled the economy, and the job market, for years to come.

Mettler, 39, was in the midst of launching his first startup company at the time. Soon, he'd learn that finding capital for the venture was a whole different process in the post-recession economy.

Despite the hardships at the time, the recession eventually became the reason the two developed SnapCap, an alternative lending firm that uses technology to streamline the process of applying for small business loans.

The banking industry has become heavily regulated in recent years, which means lenders are more cautious than ever of taking risks. Small business owners often are turned down for loans because of their credit history or tax-filing mistakes.

That rigidity has created an opportunity for tech-savvy entrepreneurs to enter the financing realm with tools that could potentially disrupt the traditional bank lending model.

Similar companies such as Kabbage and OnDeck are the more established pioneers of the tech-based lending model, but Stunzi said "the space is wide open" for more ventures like SnapCap.

Since it launched two years ago, SnapCap has provided $75 million in loans to small businesses across the country through a group of lending partners, Stunzi said.

But now that Steve Swanson has invested in the company, Stunzi said he expects SnapCap to become self-sufficient in the near future. Swanson, a Charleston native, helped create the rapid-fire stock-trading firm Automated Trading Desk in the late 1980s. Mount Pleasant-based ATD was sold to Citigroup in 2007 for $680 million.

"We are now building out our own capabilities to fund the loans directly ourselves," Stunzi said. "His investment is allowing us to improve and deliver those systems sooner."

How it Started

After spending his first few years out of college as a hotel bellman, Stunzi got an opportunity to take advantage of his lifelong interest in finance.

"I've always had a passion for financial news, you know, how money moves the world," he said.

He started working as a credit specialist at a major bank, but Stunzi said he quickly became frustrated with "the whole process" his clients had to go through to borrow money.

Hunter Stunzi, co-founder of SnapCap, works in their King Street offices.

The last straw came when he reached out to Mettler, now his business partner, in early 2012. Mettler had recently been denied a bank loan for his other business, CompareCards.com, an online tool for comparing credit-card offers.

"I ended up cold-calling Chris at his office and went and had a conversation with him about sourcing some capital," Stunzi said.

By the end of the year, the two had launched SnapCap. Stunzi quit his job, invested his life savings in the business, and banked on Mettler's already established skill of developing a marketable Web presence.

"Chris is the reason we were able to move beyond being just a startup. We're not just the next guy with another app," Stunzi said.

How it Works

SnapCap specializes in providing short-term loans to businesses with immediate uses for capital, such as inventory purchases or new hires for seasonal employees, that can be paid off within three-, six- or nine-month terms. Typical loans range from $25,000 to $100,000, Stunzi said.

When businesses apply for loans at SnapCap.com, they provide identifying information about their company, their annual revenue, and an approximate credit score.

Essentially, SnapCap is mostly concerned with the overall health of the company, such as its time in business and recent revenue, rather than the owners' credit history, which is what most banks rely on for credit decisions.

"We lend regularly to people with very poor credit scores but have excellent revenue, and then vice-versa, we will decline people with excellent credit and poor revenue," Stunzi said. "We're basically looking at 120 days of banking activity, which makes it much more simple. ... The bank is going to look at lots of other instruments to evaluate what's affordable."

The streamlined process allows SnapCap to deliver funds to borrowers quicker than a traditional bank loan.

"As entrepreneurs, what we were excited about was rather than waiting 60 days to get your money, you could get it in 48 hours," Mettler said.

Stunzi said a healthy, small business that wants to borrow $10,000 over six months would end up paying an interest fee of about $1,200, an annual interest rate of 24 percent. But he explained that since most loans are short-term, it's better to calculate interest as "cents on the dollar."

Steve Mann, a finance professor at the Moore School of Business at the University of South Carolina, said online-based lenders are not ideal for all businesses because of high interest rates, but that they are filling a gap in the economy.

"Small businesses are the engine of growth in the United States and many places around the world. ... And it's really important that they have access to capital," he said, adding that businesses like SnapCap are "putting themselves in harm's way by lending to these businesses, so they are going to charge rates to compensate their level of risk."

What's Next

Swanson said he sees the same potential in SnapCap that he saw decades ago when he was launching Automated Trading Desk.

"When ATD was created, we were competing with human beings on the trading floor who were basically punching tickets, and the analogy is, that's the banker who is basically taking a stack of paperwork and making a manual decision about a loan, and here these guys in the course of 24-48 hours are making a loan decision and getting the dollars placed," he said. "I haven't seen these types of opportunities very often, so I was very interested in joining these guys to scale and grow this business."

There's another layer of common ground at play, too. Swanson is also a College of Charleston alum who serves on the business school Board of Governors, the Foundation Board, and the Honors Advisory Council.

"One of the things I've been able to do is bring some of the contacts from the college to these guys," Swanson said.

Now, SnapCap is in the process of developing an internship program with the college.

"That's another great similarity to ATD. We built ATD on interns at the College of Charleston who later became full-time employees, and I think that's a really great channel for employees here."

The company is also in talks to move into a bigger office at the recently renovated Cigar Factory on East Bay Street by July 2015.

Stunzi said they're projecting to triple in size by then.

"We think we can become a nationwide brand," he said. "To build a big brand around technology and lending, you don't need to have thousands of people, but it's going to be a great job creator, and it's going to be a great Charleston job creator."

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