The partnership will aid small businesses and startups through crowd funding, which connects multiple potential lenders so no single investor, including the city government, is carrying the a bulk of the burden. Since crowd funding gets more investors involved, it can also raise more money for promising startups and small businesses.
Businesses will be picked through SoMoLend’s typical application process, which emphasizes startups and small businesses. Successful applicants usually have 15 or fewer employees, meet a few standards regarding business and personal finances and prove they actually need a commercial loan. In the past, businesses have raised as much as $1 million in loans with SoMoLend.
Applicants will also have to go through the city’s application process.
Even as the economy recovers, small businesses and startups are having a tough time getting loans in comparison to bigger businesses. So the focus on small businesses and startups is in part to bring beneficial fairness to the system, says Meg Olberding, city spokesperson. “Access to capital at all levels has to happen. And the city government feels like small businesses are key to growth in our local economy.”
The partnership’s focus on startups is economically sound. Governments and politicians love to herald small businesses as the drivers of economic growth, but studies suggest startups are more deserving of the praise. A paper from the National Bureau of Economic Research found that young small businesses, or startups, are the key drivers to economic and job growth.
As for why SoMoLend was picked over other platforms, Olberding says location and history played a role: “It’s a local small business, so it’s … demonstrating what we’re talking about. It’s also a demonstrated success in terms of bringing viable businesses to the market.”
The partnership is part of an ongoing effort to spur small businesses and startups in Cincinnati. SBAC was created in 2012 to pave a clearer, better path that encourages such businesses in the city. SBAC reviewed, gave feedback and approved the new partnership earlier today.
Councilwoman Yvette Simpson, head of SBAC, praised the partnership in a statement: “I am excited that the SBAC approved the city’s new partnership with SoMoLend today. By making city lending more efficient and expanding the network of small businesses receiving city assistance, this new partnership fits well into the SBAC’s goal of making Cincinnati a better place for small business.”