For SMBs, Access To, And Managing, Capital

If online lending is still a young industry — and it is — size and scale are key attributes that pay off for both lenders and borrowers.

Late last month, IOU Financial, an online lender, said that it has entered into partnership with payments provider Paysafe to advance loans to SMBs through the two firms’ respective online lending and processing platforms.

In an interview with PYMNTS, Christophe Choquart, VP of business development and strategic partnerships at IOU Financial, said that banks, faced with new regulatory requirements, have been, over the past several years, reluctant to extend capital to smaller businesses, as yet unproven. That reluctance, he said, has “opened up a void,” one that has been filled by alternative lenders willing to lend to the smallest firms, among them startups, with operating histories as brief as six months. And then, the executive said, the industry grew as investors reached yield. Now, with the missteps and headlines around the field and some of its players, activity has slowed down a bit, which, in turn, shines a light on the need for education for small businesses and the online lenders who advance them funds. The education that needs to be addressed can be as basic, but crucial, as making sure that debt can be paid back — at times, said Choquart, small business owners can be “lacking in basic financial literacy.” Deeper knowledge of cash flow is important, too. Many firms have also been enamored of stacking, where business owners keep applying for, and gathering, new loans, with little real knowledge of how those loan demands can be paid back.

Danny Chazonoff, chief operating officer at Paysafe, added that the combined relationship between the two firms serves to make sure that merchants understand the transactions and the analytics that are in place to govern loans to SMBs. Both Choquart and Chazonoff maintained that the algorithms and metrics in place that determine creditworthiness (about 250 metrics, according to Choquart) result in a 25–30 percent rejection rate, while the lending process embraces certain industries — such as specialty retailers — but not others (such as home health care), where cash flow may be spotty. The loans typically carry terms of 12–18 months. As Chazonoff stated, the potential, while staying focused on North America, is lending across online, mobile and POS — addressing efforts by these firms to obtain working capital, restructure or grow.