Susan Armstrong and her husband, Ray, run a $1.5 million (sales) roofing and construction company in Pinckney, Mich. After 23 years in business the couple relies on a patchwork of bank lines and credit cards, with interest rates from 12% to 15%. When the housing market crashed in 2008, the Armstrongs began looking for a loan, backed by the Small Business Administration, which would allow them to consolidate at a lower rate.
Two months ago Ray Armstrong entered his contact information on a website that looked like it was affiliated with the SBA. The next day he was contacted by a representative from a South Jordan, Utah outfit called Funding Universe. The rep said that for $99 Funding Universe would assess the Armstrongs’ financial situation and connect them with one of the company’s consultants. After reviewing the initial workup the consultant said he would pair the Armstrongs–for an additional fee of $2,600–with an appropriate lender and prepare their loan application. “He said that we were in a very good position to get this loan, and it shouldn’t be a problem,” says Susan Armstrong. “They told me everything I wanted to hear.”
After putting the fee on one of her credit cards, Armstrong says she came across scores of complaints from Funding Universe clients who claimed the company was a scam. Alarmed, she tried to cancel her order the next day. After a week of back and forth on the phone, the consultant told her she could get a 75% refund. She says she hasn’t heard from the company since. “I just want my money back,” she says.
The Armstrongs are among hundreds of customers–many not financially savvy–who believe they were misled by Funding Universe, which billed itself as a shepherd of capital for entrepreneurs. When credit gets tight, these intermediaries tend to come out of the woodwork. Funding Universe distinguished itself last August by appearing at No. 34 on Inc.‘s list of the fastest-growing privately held companies, with $6.5 million in sales in 2009.
Further accolades, though, will have to be won under the name Lendio. Funding Universe founder and CEO Brock Blake announced the company’s name change on Feb. 17, the day this story went to press, along with the news that it had raised $6 million in equity from Highway 12 Ventures and GSA Venture Partners.
Lendio’s sizzle: automation. In the old days at Funding Universe a team of eight consultants would pull reports on entrepreneurs from different credit bureaus and work with lenders to determine their criteria and find good matches. Now software will handle that. “We have thousands of lenders who give us their lending preferences,” says Blake, 29. “[Our software] automatically populates a customized match list.”
Cool algorithms aside, if you’re an entrepreneur hungry for funding, Funding Universe’s latest incarnation looks a lot like its former one–that is, you’ll have to pay up front and hope for the best later.
Blake launched Funding Universe in 2005, shortly before graduating from Brigham Young University. During his senior year Blake won $50,000 in an Apprentice-style contest, which he and three partners used to build a website where entrepreneurs could post their business plans in the hopes of drumming up capital from interested investors. When not enough angels and venture capitalists showed up, Blake focused on lenders. He bought a smattering of Web addresses–B2bcreditlines.com, Thelendinguniverse.com, Unsecuredline.com and Businesscreditmagic.com–to drive traffic to Funding Universe’s site. (For good measure he later scooped up Fundinguniversefraud.com, Fundinguniverseripoff.com, Fundinguniversecomplaints.com and Fundinguniversescam.com.)
In its service contracts, Funding Universe made it clear that it retained its fees regardless of how much capital its clients managed to raise. The company also received undisclosed “success fees” from lenders for referrals. If Funding Universe decided a client wasn’t ready for funding, he could pay up to $3,000 for services designed to increase his chances, such as improving business plans, preparing professional-looking spreadsheets with financial projections and choosing a logo.
What did entrepreneurs get for their money? Blake claims that Funding Universe customers have attracted $240 million of “known small business loan approvals,” including SBA loans (the majority) and lines of credit.
But angry customers say they saw a disconnect between what Funding Universe reps promised and what the company delivered. “All they did was tweak my business plan and advise me to apply for some commercial credit cards, which I could have done myself,” says Justin Fowler, a property manager in Byram, Miss. After getting rejected from Citibank, BancorpSouth Bank and Regents Bank, Fowler moans that he has nothing to show for his $2,700 investment.
Blake didn’t specifically address Fowler’s and Armstrong’s complaints but did respond, broadly: “One of the challenges of a fast-growing company is that you’re growing fast and doing it without a technology that is 100% scalable. We understand that we have customers who are angry. A lot of times it’s our fault; other times it’s not our fault.”
Two months after appearing on the Inc. list Funding Universe lost its accreditation with the Utah Better Business Bureau–one of 12 companies out of 2,700 to do so last year. The Utah Division of Consumer Protection has received complaints about Funding Universe, but a representative says that because the company is considered a “business-to-business” service, disgruntled customers are not protected under the Utah Consumer Sales Practices Act.
Blake insists Lendio’s automated systems, now in testing, will yield better results than did Funding Universe’s eight overwhelmed consultants. As for fees, Lendio will give borrowers the names of two or three matches for free; an entire list of matches will cost $99. As with an online dating site, the matching process will happen electronically. Based on the borrower’s profile, lenders will approve or deny the loan.
Don’t have all the information lenders need or just want to burnish your profile? Lendio will offer the same suite of services that Funding Universe did but on an à la carte basis. A business plan makeover will run between $600 and $2,000; website design, $1,500; incorporation services, $800; financial projections, $600. Lendio will continue to collect referral fees from lenders, a cut of the face value of the loans or a combination of both.
Says Blake: “We make it very clear that we are not guaranteeing that anyone gets funding, but we are dramatically improving their chances.”
Posted by Forbes Entrepreneur