Business Lending

Five Things Small Business Financing Should Look out for in 2022 

With another year in the books, below is a list of things that the small business finance community should think about in 2022.

Disclosure Laws are Coming

The laws in New York are changing. While the date for the new law was pushed back at least until June, the state is about to make it very difficult to finance small businesses. California, New Jersey, Maryland, Connecticut, and North Carolina are among other states to also keep an eye on regarding disclosures in 2022.

Blockchains, Blockchains, Blockchains

Regardless of the legitimacy of things like cryptocurrencies and NFTs, blockchain technology is on its way to the initial states of implementation in the financial world. In a further effort to eliminate paperwork, redundancy, and time, the idea of a decentralized ledger has all corners of the financial world watching closely.

Merchants are Becoming Digitally Native

As business owners are continuing to emerge as younger and more technologically sound, lenders should embrace fintech in any area of their processes that they can. Just to appear as a tech company may become a marketing strategy for some brokers or lenders, as those who offer the smoothest, simplest, and most technological form of funding will win over their competition with this new emerging business owner.

Brokers Using Motivational Social Media Posts to Develop Brands

As small business financiers continue to try and find their place on social media, there seems to be a gathering of those in the broker space to create motivational content. Keep a lookout for more brokers to continue internet marketing via motivational posts to not only give a face to their company, but legitimize themselves as a go-to in the space; so maybe they can launch some type of broker training program in the future.

Networking Will Continue to Re-Emerge as Top Tool

As 2021 concluded with in-person events slowly approaching normalcy after pandemic induced restrictions, the industry is showing an unprecedented amount of desire to get together multiple times a year to build their books of business. Look for events across finance, technology, and cryptocurrency spaces to increase in both numbers and attendees.

How a Former Banker is Servicing Clients that Turned Down Alternative Funding Offers

What do brokers do with the clients that don’t want to pay the costs of an alternative product, but are still too underqualified for traditional financing?

Juan Caban, CEO and Co-Founder of Financial Lynx, has leveraged his interpersonal relationships as a former banker with his passion for networking and his discovery of a niche type of client into a business that is now spread across 44 states. Lenders aren’t the only ones turning down deals, the applicants do too, he says.

Caban built a referral business by talking to people, being an active member of the industry, and taking advantage of pandemic-induced halts in business to research the best ways to serve a section of business owners that prior to Financial Lynx, were either using less attractive products or never taking on financing at all.

“I’m a big networker,” said Caban. “I always go out, I meet a lot of people, I always get referrals from a lot of different areas.” He spoke about how as a decade-long banker with major banks, he knew right off the bat in his career that traditional financing was excluding financially-sound merchants who weren’t meeting overzealous bank qualifications.

“I would meet people who want to do business with me and I would present it to my bank, but it was always a challenge,” Caban said. “You want to help out a client, but you’re limited to the credit appetite of the bank that you are working for. After getting frustrated and declining a lot of clients, I wanted to seek out how I can help these clients out.”

After leaving the traditional finance world in 2019, Caban began work at an alternative lender, where the doors to a variety of new options opened up for him.

Caban still felt limited in his abilities to get deals done because of the confines funders mandate through their qualifications, and left to start his own company within seven months. After seeing a market in financing for merchants who fall between the high risk and traditional financing qualification threshold, he began talking to people across the financial community about what products exist for these types of clients.

“I used my banker network, I probably know about 200 bankers here in New York, and I started asking them, ‘hey, do you have a program in your bank that can help this type of client?’” Seeing that merchants with good credit and no desire to pay a 40% cost of capital were being pushed aside throughout the industry, Caban decided to pursue a business out of servicing this type of merchant.

“What I found was that there are some banks out there that as long as [the merchant] has a 700 FICO score, has been in business at least two years, and are considered to be in a preferred industry, some banks are willing to lend in some cases 20% of annual sales, up to $250,000, with just an application and one year of tax returns.”

The lending services being provided through Financial Lynx based on these qualifications are bank lines of credit that revolve and renew annually.

Caban described the qualifications for this type of financing as a look into the business owner themselves, and not as much into the business. “[These banks] focus on you as an individual and if you have personal credit.”

The concept took off.

“I started working exclusively with one MCA broker shop, they were calling hundreds of businesses a day,” said Caban. “They were trying to sell [merchants] cash advances obviously because it is a very lucrative commission business, but anything that was non-cash advance, or didn’t fit the cash advance space, or merchants who wouldn’t accept the expensive cash advances, they would refer that client to me.”

The twist is that the banks don’t pay him a commission so he has to charge a fee to the merchant once the financing is completed.

“At the end of the day I feel good because I am providing the client with something that they couldn’t find on their own,” Caban said. “So I am helping the client, and almost 100% of my clients are satisfied with what they have, because they’re getting cheap financing, 5% instead of 30% money, so even with my 10% consulting fee to connect the client, it’s still 50% cheaper than what they would’ve gotten in any type of cash advance.”

The biggest hesitancy Caban sees from alternative finance companies in terms of working with his niche product and client is the patience required in dealing with bigger banks. “Everything is quick in MCA, [brokers] get approved today, get funded today, and get paid tomorrow. I say look, I can provide the client what you’re looking for, but it is a three week process.”

“The ones that say, ‘hey we want to do what’s best for the client,’ they buy into it, they send us referrals on a constant basis,” Caban continued. “The ones that say ‘it’s taking too long, they’re not into it’ and I tell them ‘you’re going to lose that client eventually.’ As opposed to losing them, make some money out of it before you leave them.”

Trying to convince the legitimacy of his product seems to be part of the daily ritual for Caban. “Having a bank line of credit is considered a unicorn in the industry. Everyone says that they have it, but it’s not really a line of credit. We’re actually providing true lines of credit. It’s truly a revolving line of credit.”

“It’s always a thing where it’s like, are you for real?”

SMB Lending Fraud Being Combatted with Fintech, AI

After almost a month in service, Linear Financial Technologies has seen success with its machine learning fraud detection program, Linear Defense. The technology is used to help prevent fraud in all stages of small business lending.

“Since launching Linear Defense last month, market feedback has been very positive,” said Sandip Nayak, Chief Strategy & AI Officer at Linear Financial Technologies, exclusively to deBanked. “We are actively deploying the solution with our first fintech client and have a second major client, [our] first bank client, preparing to deploy Defense in early 2022.”

According to Nayak, Linear Defense is leading the way in fraud prevention since its release. “We have engaged with a number of banks to test Linear Defense on their customer channels, and the solution has shown it can outperform existing fraud programs in accurately and efficiently detecting fraud.”

Linear Defense gains its predictive power through unsupervised machine learning. The software can be taught to detect fraud in multiple types of financial products and applications, using any combination of first party, third party and alternative data to determine its detection algorithms, according to the company.

​​”Fraud costs the global economy trillions annually, in terms of actual fraud and lost business opportunities from ‘false-positives.’ Now more than ever, financial institutions and other companies delivering financial services products are concerned with the increasing sophistication of fraudsters and are searching for more effective tools to keep up,” said Linear CEO Sam Graziano.

The company claims they have created a simple, lightweight solution that clients consume through an API, seamlessly integrating into their current origination, customer onboarding, or other operating systems.

“Linear Defense is a one-of-a-kind, AI-based fraud platform that surpasses existing market solutions when it comes to detecting financial crimes and fraudulent activity. Using true alternative data and deep learning algorithms, the platform has the unique ability to auto-calibrate to a client’s specific channels and customer population,” said Nayak.

“The solution’s superior predictive power enables clients to reduce the manual touch points required to onboard new customers,” said Nayak. [It’s] creating a better experience for consumers and SMBs, and a more secure process that protects our clients against bad actors.”