To kick proceedings off, we asked Mr. Gilbert what the biggest operational differences were between 1999 and now:
“The biggest difference in 1999 is both the availability and access to data. There was far less information about small businesses then we have today, and of course, the Internet was only in its early stages. Business operations were still efficient but ran a lot slower. Technology has helped us make better underwriting decisions, and speed up the process.”
“One of the main [technological] differences is how we analyse a business. We don’t solely have to rely on business owners’ personal credit score anymore. Our technology platform looks at thousands of data points to determine creditworthiness. These data points look at overall business health, online accounts and social media ratings.”
“Another obvious difference is in the speed in which we are able to do things now. We can underwrite, approve and fund a small business in 24 hours. Speed and automation hasn’t only helped us but has helped our customers, especially in the way they apply for a loan. It’s helped remove the tedious, lengthy process of traditional bank loan applications.”
The lack of technology certainly restricted supply. On the demand side, the founder spoke about the lack of public awareness back then:
“When we started, the term “alternative lending” was not even used. We spent several years educating small business owners on why they should choose us over banks. During the recession, awareness and demand greatly increased. Now, alternative lending has become the norm and small business owners are increasingly jumping on the bandwagon.”
It’s clear that the recession was a big turning point for his businesses. We asked Dave for a little more detail about the effects of the recession. He highlighted the fact that, whilst the recession did raise awareness and boost demand, it wasn’t an instant boost. The important change for P2P lenders was that, whilst loan demand temporarily dried up, bank supply of credit has remained dry:
“After the recession banks started to have more stringent lending criteria. They actually weren’t lending to small businesses (and are still not) that needed a micro-loan (between $5,000 - 100,000,000), and there is solid evidence that they have largely vacated the space of less than $1 million.”
“The small business customer we had in 1999 is the same that we have today. They are in need of growth capital. Even back when we launched, it was tough for these business owners to get bank loans, especially ‘micro-loans’ (under $100K). We were and are still here for them. We wanted to create a solution for the under banked.”
National Funding is on an upward trajectory, with 172% growth over the last three years and having loaned over $1 bn to 20,000 small business. We asked Mr Gilbert what his growth plans were:
“Right now we lend up to $500K. We want to bring that up to $1M. We are also working on developing micro-ticket products for smaller type companies as well as working on strategic partnerships.”
To finish, we discussed the emergence of rival platforms – clearly something that wasn’t around in 1999, and the effect of competition on business:
“Competition is good. It’s helped to show that there is a need for this type of disruption and small business owners are eager to try a non-traditional source and finally secure the capital they need to sustain and grow their business.
“The competition will also keep helping to drive rates down.”
Interesting stuff, and reflective of the transformation of the industry over the last 16 years. It is hard to believe that the next 16 years will not produce an even bigger transformation in how individuals and companies are financed.