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Tighter lending rules for small businesses since the financial crisis have left many seeking alternative ways to get funding. Crowdfunding, gathering lots of small checks from individuals to finance a company or project is a hot area in Silicon Valley right now.

Now one New York startup, Lendoor, wants to apply the principles of crowdfunding to small business lending in the latest effort by a technology company to take on functions traditionally performed by banks. The company won’t be open to investors right away, because it’s waiting for the Securities and Exchange Commission to adopt a regulation that would allow anyone to participate as a lender.

Crowdfunding took off after Congress passed the JOBS Act in 2012, which lifted a ban on start-ups publicly asking for capital.

The law has yet to fully take effect. So far only “accredited investors” – with $1 million in net worth not including their primary home, or annual income above $200,000 – can participate in equity crowdfunding deals.

Lendoor hopes the SEC will complete its review of Title III of the JOBS Act, which would open crowdfunding participation to anyone who is willing and able to risk money in the market, by the end of this year.

Modeling itself after the well-known crowdfunding firm Kickstarter, which matches its users to projects that interst them, so they can donate money to fund them, Lendoor plans to have profiles of borrowers for prospective investors to examine. Lendoor hopes lenders’ personal interest will determine which businesses they choose to finance.

But it’s a risky venture. Lendoor plans to automatically collect loan payments from a borrower’s account, but there is no guarantee investors will be repaid. Especially since the company says it will perform little due diligence on the companies that list on its platform.

Kickstarter has already faced backlash for not vetting some of the products raising money on its site. The rising number of scammers looking to make a fast buck from crowdfunding speaks to the rising profile of the category, and its flagship successes.

It’s not all negative. Crowdfunding has launched a 3D printer and the 3Doodler #D printing pen, and the Pebble smartwatch with multimillion dollar campaigns. And traditional funding sources have begun to demand a successful round of crowdfunding before engaging with a product to test its market viability.

A two-man blog called Dropkicker has been doing technical investigations of crowdfunding projects, in an attempt to plug the credibility gap, and protect donors. So far, they run their blog in their spare time, leveraging their technical training their education and day jobs in software engineering and electronics to detect scammers. The project grew out of Michael Ciuffi’s experience of having his idea ripped off, and funded on Kickstarter.

Dropkicker co-founder Jason Haensly says the fundamental issue is “lack of accountability,” as it’s the “responsibility of a scattered mix of backers to organize and fight…a process that will require both time and money.”

Ciuffo, says most scams they’ve discovered are the “result of inexperienced people hopelessly overestimating their abilities.”

Lendoor chief executive Viktoria Krane, who formerly worked at the credit agency Fitch Ratings dismisses these concerns.

“We will put it out to the crowd to do their own due diligence,” she told the media. “None of the small-business owners I spoke to said it would make any sense to be soliciting their loans to accredited investors.”

Accredited investors require larger returns to take those types of risks.

Krane said Lendoor would leave terms of the loan to the market. Companies will be able to ask for a particular amount of money at an interest rate they think will give the proposal the best chance of being funded.

For all the hype of crowdfunding, small business loans are up in 2014. And banks aren’t the only providers of capital. Exceed Network is an SBA micro-lender in Brooklyn and Manhattan, providing short-term loans up to $50,000. To qualify, businesses must be recommended by a team of volunteers, and approved by our loan committee.

While most small business owners first approach their local bank for a loan, there are myriad options, in addition to a traditional loan or crowdfunding that can fund new capital equipment, fund working capital, or facilitate capital improvement. With a team on board to help our clients develop their ideas into successful businesses with healthy balance sheets, we offer expertise and attention to maximize the benefit of the loan.

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