published Saturday, July 7th, 2012

Bank alternative: Rebirth Financial connects local investors with borrowers

Dr. Trey Rumph, who bought the Balloon Factory on Brainerd Road last year, got startup financing through Rebirth Financial. In addition to balloons, the store sells silk flower arrangements, such as the one he is holding, and matching paper tablecloths, plates and napkins.
Dr. Trey Rumph, who bought the Balloon Factory on Brainerd Road last year, got startup financing through Rebirth Financial. In addition to balloons, the store sells silk flower arrangements, such as the one he is holding, and matching paper tablecloths, plates and napkins.
Photo by John Rawlston.
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Chattanooga pharmacist Trey Rumph thought he had a prescription for success last year when he bought most of the Balloon Factory in Brainerd to supplement his job at CVS drugstores.

But even with an enviable credit rating score of more than 750, Mr. Rumph wasn't able to secure bank financing to buy the needed supply of costumes, streamers, wedding supplies and balloons to help the Balloon Factory meet its usual fall rush.

"I went to several banks, but they turned me down for working capital to improve the business even though this is a solid 28-year-old business with a lot of potential," the 26-year-old businessman said.

Rumph turned to a startup lending service in New Orleans known as Rebirth Financial to get his small business loan. The community-based lender, which expanded into Tennessee last year, raised $10,000 to lend to Rumph's Balloon Factory in only a week. More than a dozen individuals chose to participate in the loan after reviewing the business plan on Rebirth's web site.

"The loan helped me meet the seasonal demand last fall and make some of the needed improvements in the business which should pay off over time," Rumph said.

The Balloon Factory is among nine loans Rebirth Financial already has made in the Chattanooga area by linking those with money to lend with small businesses needing the cash.

Rebirth was started in 2008 in New Orleans following the Hurricane Katrina to provide an alternative financing means to banks for startup ventures. Company founder Chonchul Gupta said he developed the idea of the peer-to-business lending company while working on an internship at the World Trade Center in New Orleans.

"I was researching the lack of international bank branches in Louisiana, and I quickly discovered the problem was not just a lack of international bank branches but the lack of sophisticated, small business lending in the United States," he said. "As we've seen through the recent recession and recovery, lending has really dried up for small businesses."

But the tightening of lending standards by many banks hasn't lessened the business demand for capital. At the same time, the current low-interest rate environment for bank deposits also has made many investors eager to consider alternatives to boost their return on their money.

"There is a real opportunity in the market right now because you have investors who are really yield starved with interest rates so low on CDs and other bank accounts and on the other hand you have little, or no lending, for many small businesses," said Ace Chapman, who is heading Rebirth Financial's expansion into Tennessee and Georgia. "We're kind of that bridge in the middle."

So far, Rebirth is making an average of five loans per month. The typical loan is $80,000. About 100 persons have signed up to invest in loans offered through Rebirth, putting in anywhere from $50 to $10,000 each into selected loans.

"That's the void we thought we could fill to allow people like you and me to lend as little as $50 to the local business we know about down the street," he said. "This can really give a rebirth to small business and entrepreneurship at the local level."

Gupta expects many more persons to be enticed into the lending enterprise by the rates of return offered investors -- so far averaging about 10 percent -- and the ability to help businesses in their communities.

Rebirth has developed a unique assessment of businesses to rate the lending risk for its loans, which typically carry anywhere from a 7 percent to 16 percent rate of interest. Known as the JAS rating system (named for those who developed the rating), the evaluation rates the financial health of small, private companies, similar to how S&P and Moody's rating public companies.

Rebirth is working with the Estonian government to use the rating system in that country, Gupta said.

Chapman said the "buy local" food craze is spilling over into lending and many investors are eager to look at ways to make a return on their money from local companies.

"People enjoy literally seeing their money at work in local businesses," he said.

about Dave Flessner...

Dave Flessner is the business editor for the Times Free Press. A journalist for 35 years, Dave has been business editor and projects editor for the Chattanooga Times Free Press, city editor for The Chattanooga Times, business and county reporter for the Chattanooga Times, correspondent for the Lansing State Journal and Ingham County News in Michigan, staff writer for the Hastings Daily Tribune in Nebraska, and news director for WCBN-FM in Michigan. Dave, a native ...

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