Alternative small business finance comes in many forms as FinTechs target SMB cash flow. Considering cash flow woes are often linked to long payment terms for corporate customers, many of these AltFin players are emerging with financing products designed to target this particular weak point in small business finance.
That may include invoice financing, reverse factoring, and other forms of trade finance. These products can be useful, explained Portal Finance CEO and co-founder Diego Caicedo in a recent interview with PYMNTS. But they can also be extremely expensive, charging high interest rates that may lead to default and can ultimately prove even more detrimental than helpful to the financial health of the SMB.
At the same time, financial service providers are gaining greater access to financial data that can mitigate risk and provide a clearer picture of the true financial health of an SMB — and its ability to repay a loan. According to Caicedo, it's not only data from the small business borrower itself, but data from their corporate customers that's critical to providing sufficient — and affordable — financing.
While Portal Finance works to link small businesses to financing for their unpaid invoices, Caicedo said it's important to work with that small business’ own corporate customers, many of which have been forced to pay vendors on longer payment terms since the financial crisis, he added.
“We found that by helping large corporates de-risk their supply chains with their accounts payable and reconciliation processes, we were able to leverage the relationship with their supplier network to reach a large number of suppliers,” he told PYMNTS about how Portal links up with multiple members of a single supply chain.
Collaborating with a small business borrower, its corporate customers, and its financial service providers enables lenders and financiers to access a more holistic view of a small business’ financial health, he added.