Businesses try to Net financial assistance

— -- 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, at least according to James Robinson III, former CEO of American Express. He is leading a consortium of venture capitalists backing On Deck Capital, a financing network designed to provide loans to small businesses that can't pass muster with banks.

On Deck is not the first to target this financing niche. Other entrants in the field of microlending, as it's known, include:

•Virgin Money. Formerly known as Circle Lending, and acquired by British entrepreneur Richard Branson last year, Virgin specializes in managing "friends and family" loans to entrepreneurs.

•Prosper. The online peer-to-peer lending service is modeled on eBay, and provides an online forum through which lenders match up with borrowers.

•Zopa. This is a social lending website that offers investors a fixed rate of return, and provides a list of vetted borrowers who need support. Backed by credit unions, Zopa guarantees CD investments up to $100,000. Many investors accept less than the 3.75% rate of return to fund start-ups, sometimes in return for equity. "We underwrite the loans, but we let investors decide who they give the benefit to," CEO Doug Dolton says.

At On Deck, the company has spent the past year fine-tuning its approach to vetting borrowers. Banks turn down seven out of 10 small-business applications, On Deck CEO Mitch Jacobs says, 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.