As the economy continues to take a hit from worries related to the spreading coronavirus, many startups are bracing themselves for financially hard times and planning for how to survive a potential recession.
But one local startup has a solution for companies that are facing financial uncertainty. FinanceFuel, which specializes in lending to business-to-business growth-stage startups, has seen a drastic uptick in the number of businesses inquiring about loans.
Over the last week, FinanceFuel co-founder Josh Parkinson said the company has seen a 300 percent increase in the number of companies FinanceFuel is underwriting for, with the amount of cash deployed going up by more than 250 percent.
The increase in business started last week, when discussions in the media of long-term social distancing and an impending economic crisis were growing.
“There’s a lot of CEOs sitting at home just wondering right now,” Parkinson said. “One of their concerns is cash flow."
Founded in 2018, FinanceFuel began as a software startup building an accounts receivable management system, which helped clients manage, process and collect payment. But earlier this year, the startup pivoted strictly to a lending business, using its software to quickly underwrite loans to fund invoices within 24 hours.
“The only way we could collect any faster was pivoting to being a lending business,” Parkinson said. “There’s a lot of startups that have been in business for under three years and their revenue is right around $1 million, maybe approaching $2 million, and they need cash flow help so they can get to the next stage—that’s our sweet spot.”
Since launching, FinanceFuel has raised $1 million in venture capital funding. The startup is backed by Builders, a VC firm and startup studio led by Jim Kim.
At the beginning of this week, Parkinson said he began hearing from startup CEOs across the country, who are worried about how their businesses will be impacted by an economic downturn.
"We don’t know if this is going to be like 1987, where we recover in 18 months, or if it’s going to be like 2008, where it took five years for the market to recover," Parkinson said.
Coronavirus has impacted the economy significantly since it began spreading, with the stock market plummeting this week and talks of a recession being “inevitable.” Economic downturns and uncertainty affects all industries and workers, but startups may be particularly vulnerable because of the nature of an early-stage business.
Parkinson said FinanceFuel’s spike in business is mainly inbound inquiries, and based on what he’s hearing from clients, word-of-mouth is the startup’s best marketing tool at the moment.
“[CEOs] have a lot of families to care for; it’s not just their own, and having a lending relationship established now will be easier than establishing it once they need it,” Parkinson said. “But I hope this is just a little week of fear and then we go back to normal.”
