If you look at the torrent of stories posted about crowdfunding online, you’d think it was one of the most popular and successful sources of business financing in Nevada and the nation.
But crowdfunding, funding a project or venture by raising small amounts of money from a large number of people, typically online, is still relatively new here and comprises only a fraction of the lending business.
Most businesses avoid crowdfunding because they don’t understand how it works or are unsure about the risks associated with pitching a company or business idea to ordinary people, a new survey suggests.
The survey, by Manta, a Columbus, Ohio, a technology company focused on helping small-businesses promote themselves, find customers, and increase revenue, shows that only 2 percent of businesses use crowdfunding. The latest Gallup-Wells Fargo Small Business Index shows 3 percent of polled companies use crowdfunding.
Manta CEO John Swanciger said he’s seeing a gap between what funding is available from alternative sources and the perception among small businesses that the lending environment has not improved.
“Even though traditional bank loans are difficult to secure, small businesses are still apt to rely on them,” Swanciger said.
The survey also found that a lack of awareness and persistent misconceptions may cause businesses and businesspeople to avoid seeking capital through crowdsourcing.
Thirty percent of survey respondents said they were unsure of the risks of raising money in small amounts online, while 20 percent said they didn’t understand the technology associated with these alternative sources. Fourteen percent said they simply don’t trust these sources.
Also in the survey, 7 percent of respondents said they believe crowdfunding sites and alternative lenders are too complicated; 6 percent said they fear business failure with less traditional financing methods.
Of the small business that financed their business through alternative lenders, 38 percent did so because they didn’t qualify for traditional bank financing. Most, borrowed $10,000 or less, Manta found.
What time is it? It’s earnings time
The first quarter of 2015 was good to Bank of Nevada, as the parade of quarterly earnings reports began with the business bank.
Western Alliance Bancorp said its Bank of Nevada subsidiary had a loan balance of $1.81 billion at the end of the first quarter, up $82 million from a year earlier.
Deposits were $3.36 billion, up $228 million over the last year. Bank of Nevada also posted first-quarter income of $16.7 million, compared with $16.5 million a year earlier.
“We are pleased with our strong start to 2015,” Western Alliance CEO Robert Sarver said.
The Phoenix-based bank holding company posted first-quarter net income of $40.2 million, or 45 cents per share, compared with $31.1 million, or 35 cents per share, a year earlier.
“So, we are starting to see more loan request from existing customers and new customers,” Sarver told analysts on a conference call. “So that’s positive. We have forecasted this year for Nevada to grow. But, I believe the total growth we forecasted for Nevada for the year was probably something in about the $150 million range.”
What me worry about overdrafts?
Overdrafts cost consumers $32 billion a year, data collected by Moebs Services, a Lake Forest, Ill., economic research company, show.
That revenue has helped boost the bottom line of banks in Las Vegas and nationwide.
Overdrafts’ increase from $400 million in 2011 has been caused by the recession and consumers being willing to pay a high price for their bank to cover the cost of everything from rent to car payments to food.
Who uses overdrafts to cover their spending? Young people, it seems.
The Consumer Financial Protection Bureau says millennials, those aged 18 to 25, are four times likelier than those older than 62 to suffer more than 10 overdraft fees every year. If you’re a Nevada State Bank customer, those overdrafts will cost you $320 annually.
Now, the Zions Bancorp subsidiary is looking to reduce those costs. Its new product, the Worry-Free account, makes overdraft fees a thing of the past.
Craig Kirkland said the bank launched the new account three weeks ago in an attempt to attract consumers who seek nontraditional financial services.
“We believe this is a better alternative to check cashing services,” said Kirkland, Nevada State Bank’s executive vice president and retail banking director.
Wal-Mart charges a maximum fee of $3 to cash a check up to $1,000, and $6 for a check for more than $1,000. At MoneyGram in Las Vegas, it will cost you $3.50 to cash a $200 check.
“We are targeting the underbanked and those who regularly cash a pay check,” Kirkland said. “The account is designed to help people learn better money management skills.”
Nevada State Bank’s Worry-Free account has a flat fee of $5 per month. You’ll add $2.50 a month if you want a monthly paper statement.
Kirkland said the account doesn’t issue checks, but consumers have an online account, a debit card, and can use direct deposit.
He said that if you put $1,000 a month into the account that is all you’ll have to spend. If you try to by a $5 latte with only $2 in your account, the transaction will be declined.
Banks and credit unions have come under criticism in recent years for approving similar transactions that end up costing consumer $35 for a $5 coffee.
“We’ve targeted Worry-Free accounts to clients who want a bank account without the risk of overdraft fees, in addition to parents who worry about their children not having the experience of managing their money,” Kirkland said.
Kirkland said the new accounts were designed to let customers build a long-term relationship with the bank.