It's a universal truth that small-business owners need money to grow. The problem is that most don't qualify for bank loans with an 8% interest rate, and even more don't want to do business with predatory lenders who charge 40% and remind them of Tony Soprano.

Since the credit crunch of 2007, some 400 banks have opted out of the federal government's guaranteed small-business-loan program, making it tougher than ever for entrepreneurs to get attractive loans.

But now, thanks to the Internet and the power of automation, a new wave of online financiers has emerged to fill the gap.

The market is real, and the potential for growth is huge. This financing network is designed to provide loans to small businesses that can't pass muster with banks. This is not the first time some creative lending companies have tried to target this financing niche. Other entrants in the field of micro lending, as it's known, include:

Banks turn down seven out of 10 small-business applications, because they focus almost exclusively on an entrepreneur's credit rating. And, since most sole proprietors finance their operations with personal credit cards, they tend to have lower credit ratings than what the banks are looking for.

Instead of focusing on credit scores alone, studies show cash flow charts generated by the companies' Visa and MasterCard customer transactions.

"When you look at credit scores, you're looking at the struggles of a business," Jacobs says. "When you look at cash flow, you're looking at the success of a business. We've entered the market to be an ally of these business owners."

Anne Sullivan started The Soccer Locker in Lansing, Mich., four years ago with savings from her past career at KPMG Peat Marwick. Eventually, she used credit cards to help finance the business, which does about $500,000 a year in sales. But she had no luck with banks.

"Mostly they turned me down because the loans would be unsecured," Sullivan says. "I didn't have any tangible assets that I could put up against a loan. With retail, your inventory is not something a bank could sell."

She explored merchant advance services, but didn't like the conditions they imposed: In her case, they would have taken 25% of her daily credit card sales, and charged interest of 40%. "If you're going to borrow $20,000, you're up to $28,000 already," Sullivan says.

Trolling around online for sources of funding, Sullivan discovered the loan and started doing business with the company in December. The interest rate wasn't cheap — between 18% and 20% — but the loan payments that were deducted were a defined dollar amount from her sales every day.

"It's working great," Sullivan says. "I would do it again. I like the fact that the daily payment is a stable amount. I can plan for it."

Entrepreneurs such as Sullivan represent a huge opportunity, and "Banks are not set up to calibrate risk and reward,". "In fact, they're set up to minimize risk. There is a better way."

Bob Seiwert of the American Bankers Association says there is always credit available for businesses with good track records.

By Greg Farrell, USA TODAY

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