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Former Small Business Administration boss and now senior fellow at Harvard Business School, Karen Mills, wants to create a lending utopia for entrepreneurs — and it all comes down to technology.
Mills believes that modern technology can help reduce friction and barriers within small-business lending. The way she sees it, the two challenges in small-business lending boil down to information opacity — since it’s “nearly impossible” to see inside a small business and know what’s going on — and the sheer variety of small businesses that lenders encounter.
“One day you’re lending to a dry cleaner and the next day to a parts supplier, the next to a hairdresser,” Mills said during a panel discussion at the Money20/20 conference in late October. “How do you get a credit file that allows you to understand that business?”
The answer, Mills suggests, rests with application programming interfaces, better known as APIs. APIs are software intermediaries which connect two applications with one another. If you’ve ever called an Uber or sent money to someone through an online payment system, then you’ve used an API.
Mills is calling for an API to streamline small-business lending. Instead of an entrepreneur photo copying her tax information and compiling financial documents to send over to a lender, have a fintech company plug into the entrepreneur’s financials (like a QuickBooks account). The fintech can then send it directly to the lender.
The underlying thinking is that this enables a fintech company to dramatically shave time from the lending process, which can help small businesses get the money they need faster — and perhaps even highlight businesses that are creditworthy.
The idea is already coming together at Codat. The London-based fintech works as a bridge between lenders and small businesses, providing the software systems small-business customers use (think accounting and bookkeeping systems, like QuickBooks) to lenders. The lender then has real-time visibility into the small business, allowing the business to leverage its data “to access the best product at the best price as quickly and efficiently as possible,” according to Peter Lord, Codat’s CEO. Among others, Codat counts companies like Shopify and American Express as customers.
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