A startup has raised $40 million to help small businesses keep their cash flowing.

Fundbox makes it possible for ConsolidationNow smaller loans businesses to be paid upfront for work they’ve already completed.

“It takes cash to create cash,” as the saying goes. As a result, the sometimes months-long lag time between submitting an invoice and receiving payment may spell doom for small businesses already struggling to make ends meet.

It’s time for a solution, and Fundbox, an alternative finance company, is on the case. It offers payday loans to small businesses on invoices between $100 and $25,000. Additionally, a $40 million Series B investment headed by General Catalyst Partners has been made in Fundbox, which will aid the company’s growth in the fiercely competitive alternative finance business.

Internet lenders have flooded the computer industry in recent years, just as the supply of small business bank loans has almost dried up. While this industry is still in its infancy, there have already been a few significant winners. During its initial public offering in December, LendingClub, a peer-to-peer lender, raised a little over $1 billion. 

Another lender, OnDeck, obtained $200 million via an initial public offering (IPO) in the following weeks. Competition for Kabbage, May Capital, and Square Capital exists in fixed-term small payday loans and merchant cash advances that can be used to fund new equipment and other needs.

Karen Mills, former administrator of the US Small Business Administration, “all of them are great for the small company capital sector, which has been starved for a long time.” “Due to the difficulty of risk analysis, banks have mostly avoided lending to small businesses since it isn’t lucrative. In other words, these start-ups are filling the void left by banks that don’t see the value in doing so.”

In contrast to these rivals, Fundbox is focused on rewarding business owners for the work they’ve already done, according to co-founder and CEO Eyal Shinar. In large part, it was inspired by Shinar’s mother, who had her employment agency in Israel and had to deal with the interminable time it took to receive paid for the work she did. In other words, that’s what Shinar’s argument is. According to the narrator, “it’s all about getting paid promptly rather than waiting for 60 or 90 days.”

How it works

As soon as a firm connects Fundbox to their accounting software, all of their outstanding invoices may be entered into the system in one go. Fundbox’s algorithmic screening process will be weeded out fraudulent applicants, which considers how long it would take for a first invoice to be accepted. The IP address, the computer, and the location where the accounting software is registered must all match the data on the invoice, for instance.

As a former member of Israeli intelligence Unit 8200, Fundbox’s engineers created these algorithms based on their experience. Detecting a bomb plotter isn’t all that different from uncovering an identity fraudster, quoting Shinar.

Based on the information gathered, Fundbox then tells companies the loan limit it is prepared to provide them. Once the initial advance is issued, every subsequent invoice is quickly accepted or refused, which I for companies that value speed.

Fundbox charges a set monthly transaction cost, which company owners may pay back over 12 weeks. A fixed fee is stated in advance to all Fundbox clients, regardless of the borrowed amount.

As he put it, “It’s all about transparency.”

As long as new lenders have a clearly defined price structure, they can’t exploit cash-strapped individuals like payday lenders, Mills claims. So that customers can compare prices and search for the best deal, she says, “we do not want this to become an industry in which people do not know what they are paying.” Companies must function freely, according to the goal.

However, several critical rivals of Fundbox remain ahead of the curve. About 10,000 people have signed up for Fundbox as of April 2014, and the company now advances thousands of invoices per week. However, OnDeck has loaned more than $2 billion throughout its history.

However nascent the market is, Mills believes that anybody can get in on the action since demand from small companies is so high. Newcomers have a lot of potentials, she believes. Technology is altering the game, and new entrepreneurs are coming in to fill a market vacuum in a way that’s good for the entrepreneurs and small businesses,” he added. For entrepreneurs and small companies alike, it’s a win-win scenario.