by Jaimie Siegle
Hosted by Small Business Administration and U.S. Department of Treasury, the third biannual Capital Access Summit challenged its attendees – small business owners, investors, legislators and lenders – to discuss how to provide small businesses throughout the country with sufficient capital for growth and sustainability.
“The goal, as with previous summits, is to take the best ideas from the meeting, develop them, and work with leaders across the country to make sure these ideas are implemented,” SBA Administrator Karen Mills wrote in a Huffington Post blog. A few of such ideas stem from a new breed financing companies, like OnDeck Capital and Kabbage, that approve loans and deposit funds within 24 hours. What’s unique about these investors is the way they assess an existing small business’s credit: “They use data like real-time shipping schedules, records held in a business’ accounting software, and even social media to determine creditworthiness,” explained Treasury Secretary Jacob Lew in a press release following the Summit.
The catch, according to American City Business Journals’ Washington Bureau Chief Kent Hoover, is that lenders will require small businesses to cough up a lot more information. “It’s a trade-off,” he said. “Less privacy for more money.” The government would help the financial companies retrieve the necessary information using its own data, like employee rolls and business expenses.
“Greater access to information can translate into greater access to credit … If we could help these businesses share their information electronically when applying for credit, small businesses and entrepreneurs might have an easier time getting loans,” Lew said.
Hoover reports that Kabbage CEO Rob Frohwein’s ultimate goal is “what he calls “fingerprint underwriting” — obtaining granular data for small businesses on a real-time basis so that its credit can be managed on a ‘day-in, day-out basis’.” However, his company can approve a loan within seconds and dispense funds within minutes, an offer that can be difficult to turn down for entrepreneurs who need cash to sustain their businesses more quickly.
What do you think about these new finance models? Could your business – or another small business in your area – benefit from these new finance companies?