Spotting millions to merchants

Witnessing firsthand how difficult it can be for startups and small businesses to obtain working capital, especially during the recent lending crunch, technologist Adam Cohen and business advisor Lance Emanuel, who led a successful startup incubator, decided the time was ripe to build an alternative business lending platform from the ground up.

QuarterSpot Inc. was founded in April 2011. And after the legal, regulatory and online framework were in place, the company launched publicly in June 2013. Small businesses embraced the concept early on, particularly within the healthcare, restaurant and construction sectors, QuarterSpot observed.

"We went from $110,000 in loans our first day, and now we're doing over $10 million a month, and cumulatively over $110 million in loans in a roughly two-year period," said Lance Emanuel, QuarterSpot President and Chief Operating Officer.

Built from the same fabric as other peer-to-peer lending marketplaces such as Lending Club and Prosper Funding LLC, QuarterSpot adopted a different approach in how it secures funding and fully amortizes its loans without prepayment penalties, something few lenders in this space evidently offer as an option.

"The difference between us and them is they allow the general public, the general public being qualified by people making $70,000 or more a year in most states, whereas we offer these notes, or spots, through a private placement memorandum, so we limit participation to accredited investors and institutions," Emanuel noted.

He said once a loan is approved, QuarterSpot posts a loan listing on its platform that mirrors it. "It's a debt offering of QuarterSpot that mirrors the terms of the offering of the business loan to the merchant," he said.

QuarterSpot's pool of accredited investors is then able to purchase in $25 increments pieces of that loan listing. For a $10,000 loan listing there would be 400 $25 spots, hence the name QuarterSpot. Spots are purchased first-come, first-served.

Merchant and ISO friendly

QuarterSpot claims to approve loans ranging from $5,000 to $150,000 in about 24 hours, with terms averaging nine to 12 months, for as little as 12.5 cents per dollar borrowed. It plans to raise the maximum loan limit to $200,000. Currently, the company operates in 42 states with more being added.

Understanding that most business owners are optimistic by nature, yet fearful that cash flow issues may arise, QuarterSpot was mindful of this dichotomy when modeling its loan program. "How can we design a product both financially and contractually speaking that accommodates both that optimism and that fear?" Emanuel said. "From a financial perspective, we deal with a particular side of the market that is traditionally defined as sub-prime, which corresponds to the business owner's FICO credit score."

Applying for a QuarterSpot loan does not affect the business owner's credit score. "We only do soft pulls, not hard pulls, because we don't actually use the business owner's credit score as part of our credit decisioning process," he said. To qualify, the business owner's FICO score must be at least 580, and the business must have been operational for one year, generating $8,000 in monthly revenue with 10 sales each month.

When QuarterSpot introduced the platform to merchant acquirers, merchant level salespeople soon realized the loans could bridge the gap for merchants seeking to graduate to more traditional bank or SBA loans without requiring them to switch processors.

"It was very important for us to put out a product that we believed to be truly a complementary form of finance," Emanuel said, noting that the product stacks nicely with other available finance options, including lines of credit and cash advances.

QuarterSpot also noted it is flexible with channel partners. ISOs and MLSs can refer merchants to QuarterSpot, who will then handle the entire process without further assistance. Or more hands on and popular with channel partners is the option to liaison between the merchant and QuarterSpot until an agreement has been reached.

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