Data analysis also involves what initially looks like a bit of odds playing, with some “if this, then this” scenarios being played out. Such data needs to be looked at in its entirety, Mr. Goldin advises.
“(Platforms) use years of data from the marketplace from which they can spot trends. For example a business owner has a website. Do they tend to perform better? Yes or no?”
“Does a business owner happen to do this? Are they in a certain location? If they have been in business for a certain number of years, do they tend to do better?”
The old data still plays an important role.
“Let’s also not kid ourselves,” Mr. Goldin admitted. “Experion and Equifax didn’t become billion-dollar companies by luck. A FICO score is still pretty powerful.”
And 2015 will provide some significant storylines, whether they are judged by hype or actual impact.
In terms of alternative finance, the initial rate hike will be much ado about nothing, Mr. Goldin said.
“Rate hikes won’t affect the industry.”
More interesting is alt-fi’s growing accepting in increasingly wide financial circles.
“Traditional institutions are starting to face the fact alternative lending institutions are not a fad,” Mr. Goldin observed. “They’re not going away.”
“Smaller community banks are looking to buy loans off smaller platforms. They don’t want to invest the capital to underwrite the loans themselves so they will send their customer to a platform like ours and potentially buy a loan off our platform.”
Mr. Goldin also expects the bigger players to begin snapping up profitable niche players in the coming years.
Goldin is also a founding member and President of the North American Merchant Advance Association (NAMAA), a 501c trade association representing the merchant advance industry.
“NAMAA establishes best practices for the alternative lending industry,” Mr. Goldin explained. “We encourage members to disclose fees to customers and to engage in responsible lending. We also help members to make sure they are not defrauded by merchants.”
NAMAA also plays an important educational role so people comparing merchant advance loans to other forms of credit are making accurate comparisons.
“When people argue money’s expensive they don’t look at the whole picture. There may be no personal guarantees, no recourse, and banks may have to pay attorney fees of $10,000 to $15,000 for an agreement.”
“We try and point things out so its apples to apples for customers.”
One final factor for capital-seeking small businesses to keep in mind is time, David Goldin said.
“You may wait six weeks for a $20,000 loan when you could just sell receipts within an hour. Remember time is money too, it’s not just about the cost. In the time it takes to grow your SBA loan you may be able to grow your business faster.”
“We can actually plug into Staples’ customer base right away and using our API we can give real time decisions to their customer as to how much of a loan they’ll qualify for.”
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