Using nontraditional data sources, including unstructured data, online lender Credibly is launching a small business lending model designed to dynamically change as its borrowers grow.
The company said it is has developed a data science and risk management platform with a focus on understanding behavioral patterns of small business owners in an attempt to use technology to bring the traditional know-your-customer aspects of community banking back into small business lending.
We focus a lot of time on the kinds of decisions small business owners makes by looking at their revenue trends and seeing where they made investments in their business, said Glenn Goldman, Credibly CEO.
The company reviews nontraditional data sources, such as Yelp ratings, to evaluate potential small business borrowers. But rather than taking a quantitative approach to measuring Yelp ratings, Credibly uses tools such as natural language processing to glean insight from unstructured data hidden in Yelp reviews.
Some might look at Yelp ratings and depending on how well a business is scored that will drive whether or not they choose to lend to that business. Well, for us, we look to that Yelp rating to find insight into the business. If through the ability to digitally read natural language we see words like renovation, or closed for vacation, that will tell us some things about the business that maybe the business owner didnt tell us, Goldman said.
Credibly formally launched in its current form in June, when the lender entered into a partnership with Web Bank enabling it to provide lending in all 50 states. The company was created from a smaller niche lender named RetailCapital, a significant equity commitment from Chicago-based private equity firm Flexpoint Ford, and data science, technology and risk management assets built by a team assembled by Goldman. Goldman previously spent 12 years as CEO of CAN Capital, a market share leader in alternative small business financing.
Beyond its embrace of analytics, Credibly aims to serve a wider swath of the small business lending market with a business plan focused on right-size lending. Banks often serve the top 20 percent of borrowers and many online lender target the subprime part of the spectrum, Goldman said. Both types of lenders have high acquisition costs because they attract many more potential borrowers than they can serve, he argues. In addition, businesses grows and their creditworthiness improves, subprime lending products are no longer cost competitive, meaning lenders who only offer subprime products may have a short window to serve growing businesses.
The way we solve for what is a very high cost of acquisition and low lifetime customer is to offer a range of products across that credit spectrum, said Goldman.
Having a wider portfolio of lending products allows Credibly to be proactive about offering more attractive financing to businesses as they mature. In some cases, the lender even goes one step further, Goldman said.
We might let borrowers know up front that if you perform well here, we will offer you a rebate or waive an origination fee on your next financing, Goldman said. We can offer incentives to perform well.
Related Articles:
ING uses Kabbage for small business lending in Spain
Goldman Sachs hires tech banking exec to launch online lending