There’s no doubt that 2015 was an interesting year, and there is plenty to look forward to in 2016, Biz2Credit‘s co-founder and CEO Rohit Arora said in a year-end interview.
This year ends with the first Fed rate hike in nine years. It could have waited, Mr. Arora believes.
“Janet Yellen boxed herself into a corner.”
Ms. Yellen and others spent most of 2015 saying there would be a rate hike at some point. As the days dwindled she was left with few options, save for a hike or losing credibility, he suggested.
“They never anticipated the slowdown in China and the commodities collapse.”
Add in a weak economy, low oil prices and no wage pressure and the only gun pointed at Ms. Yellen was the one she bought herself.
“Yes the unemployment rate is down but many have stopped looking for jobs. The actual rate is more like seven percent, not five,” Mr. Arora explained.
“The increase should not happen, not even at 25 bps.”
At only 25 basis points, the rate increase on its own will not do much to help the economy, Mr. Arora said. Once rates hit 75 to 100 points decent margins start appearing and lending should increase.
The small increase size should be taken as a sign the Fed believes the economy is improving, he added.
There are other avenues available to help small business besides a tepid rate hike, Mr. Arora said. One is allowing credit unions to lend more than the current 12.5 percent of capital they are legally allowed to lend to small businesses. There has been a bill working its way through Congress for the past five years that would bump that percentage up to 27.5 percent.
The low percentage combined with the more complex underwriting involved in small business lending makes it unattractive for institutions with smaller capital pools, Mr. Arora explained.
“They cannot scale up, it’s too limited. It makes little sense to expend the effort.”
Mr. Arora believes three themes will dominate the alt-fi landscape in 2016.
The first is the convergence between banks and technology. The industry has already seen several announcements about banks employing technology, pooling resources and partnering with fin-tech providers. Expect that to continue, Mr. Arora said.
Look for the sector to enter a consolidation phase, he predicted. Some players will disappear while others will be acquired by competitors and hedge funds. The number of less formal unions will also increase.
Good platforms will clearly distinguish themselves by strong teams and solid data analytics.
“Too many online alternatives are popping up,” Mr. Arora said.
Arora also believes 2016 should be a good year for small business to borrow. The economy should do well and pent-up demand will likely be released. Low oil prices should also help.
There is also little chance of a geopolitical shock that could disrupt the global economy, Mr. Arora said. China’s economy, while slower, appears to have stabilized.
The stronger US dollar is great for the Asian economies but less so for Europe, which exports far less of its output, Mr. Arora explained. Therefore the stronger dollar is not helping Western economies.
Just before Christmas Biz2Credit released the BizAnalyzer Score Simulator Tool, a new feature allowing small business owners to see a snapshot of how cyclical revenue changes, cash flow, credit scores and other factors affect their creditworthiness to lenders.
“This virtual CFO resource gives them a complete view of exactly what lenders examine when they underwrite small business loans,” Mr. Arora said.
The BizAnalyzer Score Simulator Tool allows users to see the impact of such occurrences as a bounced check or abnormal cash flow pattern on their credit score. It is the newest iteration of BizAnalyzer Score, a tool which evaluates more than 2,000 data points to produce a score ranging from 0 to 100 based on personal credit, debt-to-income ratio, time in business, industry risk, corporate risk, revenue, cash flow and repayment history.
It allows the user to compare themselves against their industry when applying for a loan.
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