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, but many were having trouble getting bank loans. “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.”
Gupta discussed the problem one summer evening with his friend and fellow MBA Xavier Cabo, and by the end of the night they’d devised an idea for a peer-to-peer lending system focused on giving loans to small businesses rather than individuals. “That was our ‘aha’ moment,” Gupta says.
In late 2009, Gupta and Cabo began 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 professors at Freeman 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.
After graduation, while their classmates went on to work at Procter & Gamble and Johnson & Johnson, Gupta and Cabo decided to make a go of their business. During the day, they worked in Gupta’s living room developing the platform for the website and networking with the small business community in New Orleans.
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 and a 1.25 percent closing fee, and they must repay their loan on a monthly basis.
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. —Alison Damast, posted Dec. 14, 2011