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Krista Morgan of P2Binvestor Overcomes Naysayers To Fund Growing Small Businesses

With all the attention given to angel and venture capital, you might think that these financing options are the most likely to be used. To the contrary, debt is by far the dominant form of outside funding used: for example, 86% of $1 — $10 million companies seeking outside financing applied for a loan compared to 5% seeking equity financing, according to The 2018 Small Business Credit Survey
However, since the late 1990s, as banks have consolidated and sought out more profitable sectors of the credit market, they have been shifting activity away from the small business credit market, according to Why Small Business Lending Isn’t What It Used to Be.
To fill this void, a wave of online lenders has emerged. Seizing on an opportunity overlooked by bank lenders, online lenders are using technology to make small-business lending more efficient and profitable. They provide simplicity and convenience in applying, a quick decision on loan approval, and speedy delivery of capital. 
While these new options are more expensive than traditional ones (online lenders charge more to cover the risk they undertake), ultimately they make more money available to more businesses. This not only fills a void left by banks but increases the likelihood that a small business will qualify for a loan. These online lenders come in a variety of shapes and sizes, including SBA loans, short- and long-term loans, lines of credit, equipment financing, merchant cash advances, and invoice factoring. 
In 2011, Krista Morgan was living in the United Kingdom. She watched how peer-to-peer lending was changing how loans were financed and made. She and her father began discussing whether this model could be applied to asset-based lending in which a loan is secured by inventory and/or account receivables. They thought it could and Morgan moved to Denver, where her father was living. 
In six months, Morgan and her father raised $200,000 in seed capital. After determining what market niche to focus on, how they would finance the loans (accredited investors, i.e., “wealthy people,” private credit funds, and family offices) what technology would be used, as well as ensuring legal and financial compliance, P2Binvestor launched in 2014. 
Many small business online lending products target loans under $250,000. Rates are high for these products. Companies generating $1 — $15 million in revenue seek more affordable financing. However, some are growing quickly but not making enough profit to qualify for a bank loan: large banks turned down 34% of these companies that applied for loans and small banks turned down 21%, according to the 2018 Small Business Credit Survey. P2Binvestor focuses on serving them. 
On the business side, “getting referrals has been hardest,” said Morgan. P2Binvestor has a direct team that goes to consumer product trade shows. It developed a strong following among organic food companies and is looking to develop more of these vertical markets.
It also started partnering with community banks, which are known for strong customer service but not offering technology-driven products. Referrals come from banks who can’t meet the debt needs of some small businesses, and both the bank and P2Binvestor provide the financing. This blend of expertise and financing enables the partnership to deliver a more affordable loan to small businesses quickly. A win-win-win!
“We just closed our fifth year of lending,” said Morgan. “We’ve advanced $1 billion to growing businesses. With a sub 2% annualized default rate and the ability to collect on 50% of defaulted loans because we are an asset based lender, we have developed a strong track record for investors.”
On the personal side, filtering out the naysayers has been difficult. When you read TechCrunch, they make it sound easy to scale innovative companies. The truth is that innovative companies go where others have not gone before.  A lot of people think that you can’t do what you’re setting out to do. Morgan takes comfort in a Teddy Rosevelt quote.
It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly...
Theodore Roosevelt Jr.
She also journals, which allows her to write down the criticism then close the book on it. However, no matter how comforting Roosevelt’s words and journaling are to Morgan, she has found that peer support helps her find the path to move forward. She spends time with other CEOs who face similar challenges to her. Morgan belongs to Vistage, a peer-mentoring membership organization for CEOs, business owners, and executives of small- to mid-size businesses. She also belongs to two informal groups.
One group has eight tech entrepreneurs in it. “I benchmark myself against other tech companies in Denver who are at the same stage and have raised similar amounts of capital,” Morgan said. They meet once a month and have a Slack channel. “We ask each other questions and share presentation decks.” It’s very practical. 
She is also part of a female CEO group. The women run companies of very different sizes and are in a variety of industries. Over drinks, they share the unique challenges women face. Brainstorming with other women provides a different kind of insight.
When the naysayers knock your business idea, how will you filter out the noise?
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