The alternative finance industry grew up in the wake of the 2008 financial crisis – a crisis that ultimately rendered the major high street banks incapable of continuing to lend to small businesses in significant volumes. Since then, we’ve received report after report about the continued scaling back of the banks’ SME lending operations – a pattern that has been pretty consistent across the globe. Conversely, the numbers are showing rapid growth amongst peer-to-business lenders, online invoice financiers, crowdfunders and all kinds of other alternative funders.
Many would argue that it’s not a case of the banks not wanting to lend to SMEs, but rather that they simply cannot lend SMEs. There’s too much in the way of red tape and too little in the way of margins. The alternative financiers, on the other hand, are perfectly adapted (purpose-built, in fact!) for the servicing of small businesses.
But it seems that some of the banks are now trying to regain lost ground. Mirador Financial is a bank, credit union and lending nonprofit-facing service that leverages data science in order to streamline and ameliorate the process of lending to small businesses. The software specialist has just announced the successful completion of a $2 million seed funding round. The purpose of the fundraise was to allow the business to scale up R&D and sales in order to meet growing demand for its next-generation small business lending technology platform.
Mirador’s systems will allow banks to swiftly assess risk and offer attractive loan pricing to the massively underserved small business space. The software makes use of untapped sources of data and machine learning in order to achieve this. The platform may be used “as is”, or integrated into the website of an existing lender. The really interesting part of all this is that Mirador is marketing itself specifically and deliberately to a more traditional variety of lenders.
Bruce Gibney, an angel investor who participated in the £2m Mirador fundraise, explained:
"Given the scale of the SMB lending problem, only banks can provide the capital the market requires. As demonstrated by the mismatch of shrinking credit against a background of economic recovery, banks need new tools to find credit-worthy customers to lend to and to expand credit to existing customers."
“The growth of peer-to-peer lending underscores the demand for lending, but the half-trillion dollar scale of the business means that a comprehensive solution requires banks deploying new technologies to get credit flowing. Mirador and its customers understand that old technologies or small-scale approaches aren't enough."
Should this news be considered cause for concern among alternative lenders? There are many factors at play in working towards an answer. Will technologies like Mirador become widely adopted within the banking world? Would the adoption of Mirador-like software allow traditional lenders to offer a quality of service that is on par with that of the alternative financiers? Indeed, are banks actually interested in re-entering the small business lending market? Do peer-to-peer lenders (and the like) now have a sufficiently strong foothold in the world of small business financing that they cannot be dislodged – even in the face of stiff competition? It will take some time for the answers to become clear. The irony here is that the very success of companies like Funding Circle and MarketInvoice appears to have played a part in persuading some institutions to once again kickstart their own small business funding activity.