B-School Life

B-School Startups: A New Lending Option in NOLA


Editor’s Note: This story is part of Bloomberg Businessweek’s occasional series on the world of startups. The series focuses on MBAs and undergraduate business students who developed their ideas or launched their businesses while still in school and the many ways their schools helped them get their new ventures off the ground. For a look at some business students trying to build their own businesses, check out our slide show.

When Chonchol Gupta entered Tulane University’s Freeman School of Business in the fall of 2008, New Orleans was still struggling to rebuild after Hurricane Katrina. Business leaders touted small businesses as an essential part of the recovery effort, but many were having trouble getting off the ground because they couldn’t get bank loans.

During his summer internship at the World Trade Center of New Orleans, a nonprofit economic development group, Gupta experienced the problem firsthand. His task for the summer was to conduct a research project focused on the death of international bank branches in the city. “I realized one of the things holding New Orleans back and holding small businesses in the city back was not just a lack of international banks,” he says. “There was a lack of small business banking, period.”

THE “AHA” MOMENT

He pondered the problem, talking it over one summer evening with his friend and fellow MBA Xavier Cabo at Bruno’s Tavern, a popular student hangout. Over beers, the two tried to come up with a way to make credit available to small businesses. By the end of the evening, they’d devised an idea for a peer-to-peer lending system, like The Lending Club or Prosper. But their system would focus on giving loans to small business, rather than individuals. “That was our ‘aha’ moment,” Gupta says.

When they returned to school in the fall of 2009, Gupta and Cabo got to work developing a business plan for the company, which they dubbed Rebirth Financial. They planned to set up an online platform where borrowers—small business owners—could put up a listing that described their business and ask for a loan they’d use to help their business grow. Individuals or institutional investors could then log onto the website, review the loan requests, and decide if they wanted to fund the small business.

Gupta and Cabo talked with James Biteman, a management professor at Freeman, and Georgios Bakamitsos, an assistant marketing professor, who helped them iron out the details of their business plan and gave them advice on how to launch the company. The professors also encouraged the budding entrepreneurs to enter business competitions. So that winter Gupta and Cabo entered the Federal Reserve’s Investor Idol competition. They came out as finalists, named one of the top four companies in the competition with the potential to change the U.S. financial system.

FIRST STEPS

After graduation, while their classmates went on to work at such companies as Procter & Gamble and Johnson & Johnson, Gupta and Cabo decided to make a go of their business, getting a $20,000 loan from their families to jump-start the company. To make ends meet, Gupta took a job working night security at a local bar, while Cabo, a former online and marketing manager, spent his evenings doing Web design projects. During the day, they worked in their office—Gupta’s living room—developing the platform for the website and networking with the small business community in New Orleans. They were also able to enlist eight unpaid MBA interns from Freeman to help them with everything from Web development to creating a tool that allows the company to predict the financial health of small businesses.

This past February, the website went live and Gupta and Cabo started accepting applications from borrowers. The company makes money by charging a 3 percent servicing fee on every loan, which is deducted from the borrower’s interest rate. Borrowers also pay a $150 application fee, a 1.25 percent closing fee, and must repay their loan on a monthly basis. Gupta declined to disclose the company’s revenue for this year.

One of the first deals Gupta and Cabo brokered was a $390,000 loan to the New Orleans-based NOLA Brewing Co., matching it with ASI Federal Credit Union. Since then, they’ve brokered 10 more deals through the website, with the majority ranging from $100,000 to $500,000. Most of the lenders have been community development financial institutions, credit unions, and banks, Gupta says.

The company has tapped into a booming market: This month the University of Nebraska-Lincoln’s State Entrepreneurship Index, which compares how states fare in terms of business formation and innovation, ranked Louisiana sixth in the U.S.

PROFESSORS’ VIEW

Rebirth’s advisory board—which includes Biteman and Bakamitsos as well as professors from the nearby Loyola University New Orleans and Xavier University of Louisiana—has been pleased with the progress the business has made since it was launched seven months ago, Biteman says. “Remarkably, the first couple of deals they put together were pretty much on target of what they had conceived when they wrote their business plan,” he says. “It says that they were not very far off the mark with their idea.”

This month Rebirth helped Jim Blitch, a longtime New Orleans resident, find funding for ZingBoard, an online platform that allows elementary school children to share their achievements with their teachers, classmates, and parents. Blitch had invested $20,000 of his own money to launch the startup, but he didn’t have the funds necessary to install security updates before launching a pilot of his software in several New Orleans schools this fall. Within a week of submitting an application to Rebirth, he was approved for a $5,000 loan. He hopes eventually to borrow another $40,000 or so using the Rebirth platform, he says. “A couple of weeks ago, I went around and said, ‘Where am I going to find another dollar, let alone $5,000?’” Blitch says. “For me, Rebirth was that missing link.”

Now that the business is up and running, Gupta and Cabo have decided to expand their business beyond New Orleans and recently found partners who will be helping them run branches of their business in Tennessee and Ohio. They’ve been selected to present at FinovateFall, a leading financial technology conference in New York this September, where they’ll unveil their new small business rating system and meet with potential investors.

For Gupta, who went into business school thinking he’d launch a career in international finance, his career path has taken him by surprise. Still, he says, he’s proud that he’s following in the footsteps of his father, an entrepreneur who owns a civil engineering company in California. “If the economy had been better, I wonder if we would have stuck it out?” he says. “But the flip side of that now is looking back. I wouldn’t trade this experience for anything.”

Join the discussion on the Bloomberg Businessweek Business School Forum and follow @BWbschools on Twitter.
Damast is a staff writer for Bloomberg Businessweek.

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