As a lifelong entrepreneur, I’m as enthusiastic about rockets and outer space as the next person. If you were to ask me to name the technology the progress of which intrigues and impresses me most, however – and which, in my opinion, holds the most potential to increase the happiness of humankind – I’d answer you with one word:
Financing.
It’s often said that financing is the lifeblood of small business. It would be more accurate to say that financing is the lifeblood of everything. You don’t get trips to Mars without significant financial backing. You don’t get great movies without investors. Everything – from the flowers you buy on Mother’s Day to your favorite smartphone app – exists at least in part because somewhere, someone borrowed money to follow a dream.
For more than twenty years, I’ve had a front row seat to the show. My first successful bid for a serious chunk of financing – over half a million dollars – occurred after I’d started and sold a couple thriving businesses and had been informed by Wells Fargo that I still couldn’t borrow more than 30k at a time.
Improbably, my leap forward occurred in the mid 2000s because a broker I’d never met taped a flyer to my door advertising her services. It wasn’t because she was a better entrepreneur than I was. Through trial and error, she had availed herself of some facts that I wasn’t aware of, and charged me a handsome fee for her services.
That’s what the whole financing revolution turns on: availability of information. But let’s take a brief look at how we got here.
Take It to the Bank
Back at what often feels like the beginning of time, banks created the loan application. If a small business owner needed a loan to take their business to the next level, they had to physically walk into their local bank to do it. They had to cross their fingers not only that they would receive the loan, but that the loan officer was savvy enough to recommend the product that would best meet their needs.
Then came the seismic shift of the internet. Business owners seeking a loan from Wells Fargo were no longer physically limited to a branch in their hometown; a New Jerseyan could apply to a bank in Ohio . More importantly, you were no longer limited to banks – there were armies of private lenders online. As the options for obtaining financing increased, so did the types of financing available to business owners.
But while the internet made looking for financing more convenient, it remained up to business owners to track down lenders; to figure out what financing products best met their unique situations; to do all the research on their own and choose from an intimidating array of options for which they might not even qualify.
The Rise of the Marketplace
I had paid a broker thousands of dollars for information that would be available free of charge on my home computer a few years later. This experience was a direct inspiration for my decision to co-found a company called Lendio in 2006. Lendio was a step forward in that it created a one-stop marketplace for small business owners in search of financing. No longer would they be forced to go from lender to lender, hat in hand; from now on, using financial data provided by our clients themselves, we brought the lenders to them.
Over the years, marketplaces evolved, and new players entered the space. Today, business owners can access online marketplaces that inform them which financing they automatically qualify for. These platforms aggregate business data and then present options that allow business owners to “quick apply” without the need for a time-consuming application process.
Embedded Together
The next shift in the financial revolution involves SaaS (Software as a Service products) and payments companies and what is known as embedded lending. These products include but are not limited to services like the following:
- Paypal
- Stripe
- Shopify
- Intuit
- Square
Small business owners who use these services can receive financing offers directly from the companies that provide them. They see your data in detail, watch the growth of your business as it is happening, and are thus in a prime place to offer you loan products tailor-made. A business that you already know and trust can offer you help because it knows and trusts you.
Utah-based entrepreneur Rocky Kerr shared some insights with me regarding this movement. He refers specifically to Shopify, but he could be naming any of the services listed above:
“Shopify had better insight into our business than any lender could. They had real time and historical analytics on almost every aspect of our business, from revenues, average order value, number of customers, repeat customers, sales cycles, etc. that enabled them to establish a risk profile and an appropriate amount of capital to offer us.”
The Future Looks Bright
As the world of financing continues to expand, third-party lenders are now looking to partner with apps such as TikTok. Though TikTok isn’t a business app, it is home to thousands of active content creators for whom financing might make all the difference.
TikTok has signaled its awareness of this fact by hiring a third-party lender – Kanmon, in this case – to embed its financing technology on the platform. TikTok can now offer financing products to its customers the same way PayPal does, which is a potentially game-changing development for artists of all kinds.
In closing, I’ll ask you one question:
If you’re a small business owner – a flower shop, say – it’s entirely possible you use Square as your point of sale. It’s equally likely that you use PayPal; that your website is powered by Shopify. You for sure rely on some type of Customer Relationship Management (CRM) to run your business, and you’re virtually guaranteed to be using Quickbooks. The point being, there are five places right where you live and breathe in which financing options will appear like magic for as long as you stay there.
Why on earth would you ever walk into a bank again? You might as well hop into a horse and buggy while you’re at it, or tape a flyer to an office door. The future is here and it’s looking glorious.
About the Author
Levi King is the CEO, Co-Founder and Executive Chairman of the Board of Nav, a free site giving business owners access to their business and personal credit data, along with tools that match them to the best financing and services.
