The city of Cincinnati is suspending its relationship with SoMoLend, the local startup that the city partnered with in December to connect small businesses and startups with up to $400,000 in loans.
The broken partnership comes in response to accusations of fraud from the Ohio Division of Securities that have forced SoMoLend to stop giving out loans in the state and could lead to the business’s shutdown.
City spokesperson Meg Olberding told CityBeat in an email that although the city partnered with SoMoLend in December, it has yet to give out any loans through the crowdfunding incubator.
The Ohio Division of Securities says SoMoLend failed to gather the proper federal and state licenses for a peer-to-peer lending business and falsely inflated its performance and financing figures.
SoMoLend gained local and national recognition for supposedly helping foster startup and small businesses by linking them to loans through crowdfunding — a particularly promising proposition given the state of the economy and research from the National Bureau of Economic Research that shows startups are the best drivers for economic and job growth. But with the extent of the charges, it’s questionable whether SoMoLend had any success to begin with.
Candace Klein, CEO of SoMoLend, told The Cincinnati Enquirer on Sunday that the company is currently in talks with the state. She stressed that the Ohio Division of Securities won’t issue a final order against SoMoLend until after a hearing scheduled for October.
SoMoLend, which stands for Social Mobile Local Lending, was founded in 2011. The business’s specialty is using crowdfunding tactics to connect small businesses and startups with lenders. It then packages the loans to sell them as notes and charges a fee or commission for its services.