Virtual Currency Games

Access to capital for small businesses still remains as dry as James Bond’s vodka martinis.

Banks continue to keep their vault doors shut tight.  And, given that the portfolio of commercial loans in this country 소액결제현금화 is teetering on a knife’s edges, who can blame these financial institutions for showing caution as these commercial loans can, at any moment, turn toxic (following the lead of all those subprime mortgage loans that trusted us into this financial crisis some two years ago).

But, like the knife’s edge that these loan portfolios are balancing on, the economic recovery that is scarcely showing signs of life is also hanging on by a thread.

Any recovery in this country will only be lead by small businesses.  It is small businesses that have the greatest impact on community development, hiring, growth and wealth creation.  And, when communities at large get lifted up by the very same members who reside there, all those within those communities benefit – all groups, not just a select few.

However, when it comes to lending, given our current underwriting models, it is also these same small businesses that encompass the greatest amount of risk to banks, or so they say. But, maybe this greater risk is tied more closely to the method of underwriting than it is to the borrowers themselves.

Banks and other financial lenders have essentially used the same underwriting guidelines or criteria for centuries.  At the beginning of the loan process, lenders tend to analysis a borrower’s past performance to gauge how each borrower will perform in the future; sometimes with very little understanding of where that borrower may ascend to at some future point in time.  Further, while most regional or national banks have taken strides in implementing new technologies seeming deigned to improve underwriting (usually by taking credit decisions out of the hands of local bankers), these new innovations merely follow the same flawed underwriting standards; they just deliver the results in a different manner or speed up the process.

And, as we can clearly see, the current methods of underwriting are truly flawed; not just from the current shoddy or non-existent bank lending but also from the very short-term, low impact government run programs like SBA guaranteed loans have on overall small business lending; which on the surface are great programs but are flawed as they too rely on the same underwriting abilities of banks and other financial lenders.

But, leave it to the entrepreneurial determination of many new entrants into the small business loan industry in seeking new ways not just to improve business loan underwriting but to disrupt the entire way that lending is conducted in this country.

For example, most traditional banks loans are considered fire and forget (or more like fire and hope).  When a loan is approved and funded, lenders set payment dates (usually at monthly intervals) then essentially take themselves out of the picture (even though they may still require the business to report its financial position periodically). Then, should a borrower get into trouble, most lenders do not realize it until it is far too late for anything to be done (on both the bank’s and the borrower’s part) – all of which adds risk.

However, there are new entrants that are attempting to reduce some of the risks to both themselves and their customers by not focusing so much on past performance but by looking more at today’s and each day’s cash balance.  Thus, instead of collecting payments monthly based on the borrower’s past profitability, they essentially take daily micro payments – payments that seem to place less of a cash flow burden on the borrower as well as reduce some risk associated with longer payment terms.  Moreover, by focusing on micro payments, profitability is no longer an underwriting requirement as the focus shifts to daily cash flow (which many businesses can generate even though they have yet to turn a profit).

 

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