Invested

Cash Flow is King

If you've ever run a small business (those things that provide 50% of all US jobs), you know that managing your cash flow correctly is critical to building a sustainable business. You manage your payables and receivables, negotiate terms to extend payments, and obsess over making sure your payroll clears every two weeks.

Given how important cash flow is to small businesses, it's bewildering that most banks and lenders don't actually look at this when evaluating credit worthiness for a loan. Instead they ask for things like tax returns, accounting books, physical assets, and personal guarantees from the business owner. Considering the amount of time the owner of a small business spends thinking about cash flow compared with how much time she thinks about her taxes, accounting, and personal finance...shouldn't the cash flow be the focus of the lender?

Focusing on cash flow seems like a no-brainer for lenders, but analyzing thousands of payments and credits to understand the ebbs and flows of SMB liquidity can be an analytical nightmare. Banks will do it for very large deals when the fees and interest justify the hours, but when it comes to small dollar loans (less than $100,000), it seems the trend is to ere on the side of caution and just reject the application (after asking for a lot of paperwork that has little impact on creditworthiness, of course). Traditional lenders need a way to offer small business loans based on the factors that really drive creditworthiness of a SMB.

This is why we are excited to introduce LendingFront to the ValueStream family. LendingFront is an underwriting and servicing SaaS platform for cash flow based SMB lending. The low cost SaaS model allows banks and lenders to rapidly catch up to and compete with leading technology enabled SMB lending startups, without investing millions of dollars in developing new internal infrastructure. Beyond just cash flow, the platform is continually incorporating new sources of SMB data, allowing lenders to custom develop their own underwriting standards based on their customers specific needs.

When we first met the founders of LendingFront, Jorge Sun (CEO) and Dario Vergara (CTO), we were immediately impressed by their knowledge of the SMB lending space. Beyond understanding the SMB market, both founders showed deep insight into the needs and concerns of traditional lending institutions. It takes a great founder to launch a lending startup, but it takes another special breed of entrepreneur to understand how to successfully integrate new technology with the internal processes of a bank. We think the LendingFront team might have learned all of that during their time building On Deck Capital (recent IPO at 1.4BN) and running SMB credit at Capital One Bank, both institutions that have pioneered alternative credit in the SMB market.

Based on all that product expertise and market experience, we took a poll around the office for the top 5 reasons you should talk to these guys:

  1. If you see the 28 million US small businesses as an underserved customer segment
  2. If your current underwriting process asks questions like "can I have your tax returns for the past 5 years"?
  3. If you think a FICO score has nothing to do with the risk that a business misses payroll
  4. If you think shiny new lending startups shouldn't have all the fun
  5. If you think "pay as you go" is the way to go If you've got some better reasons let us know and we just might add to this list.

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