Solving The Small Business Credit Dilemma

business credit scores

Before online lending, long before Credit Karma, and way before machine learning powered by cloud-based applications, if a person or business needed to clean up their credit in order to apply for and be approved for a loan, perhaps even getting a loan on better terms, they had to write letters to each credit bureau […]

business credit scores

Before online lending, long before Credit Karma, and way before machine learning powered by cloud-based applications, if a person or business needed to clean up their credit in order to apply for and be approved for a loan, perhaps even getting a loan on better terms, they had to write letters to each credit bureau where bad actions were recorded and ask to have those actions removed. That may have also entailed working out a payment plan with creditors who reported those actions in order to get in their good graces. Levi King understands that process well.

He also understands the challenges of being a small business owner. Having owned a hotel, a management company, a retail financial services company, and several franchises–all before co-founding Lendio and Nav–he’s seen countless small business owners with low credit problems.

“I’ve applied for financing about 30 different times,” he said, “and learned the hard way how it all works.”

King and Caton Hanson, a lawyer specializing in business credit, opened the doors to Nav in 2012. The lifelong friends saw a need for small business owners to manage their business credit and streamline access to financing. They each contributed half a million dollars out of pocket and raised another $40 million from venture capitalists. Last August, Experian, one of the tree major credit bureaus in the U.S., put in another $15 million. Tencent Holdings and Kleiner Perkins are both notable investors.

The Platform That Monitors Small Business Credit and its mobile app provide tools integrating and improving credit data so owners can get reporting, dispute errors, set goals, and keep track of where they are in relation to those goals.

“We start with where lenders say the credit box is,” King said. “We use machine learning and a match factor to unveil what’s keeping you from getting approved so you can work on that.”

The direct integration with various credit bureaus and customized alerts let small business owners see something wrong and act immediately by clicking to dispute those actions. The app redirects to the credit bureau websites where errors can be disputed online.

“We can predict errors, and the bureaus agree most of the time,” King said. “We like to measure engagement. How often do users log in? Is data improving? We’ve seen gains in both of those, and in credit approval. We’d like to remove the friction of applying for loans by getting people approved before they ever apply.”

Customer numbers have gone from 5,000 to 200,000 in two years as small business owners discover this alternative to dealing with each bureau separately. Unlike Credit Karma, they serve only the small business market. Nav hopes to continue adding data so customers can see information that lenders can use against them or that would help in making financial decisions. Their core product–business credit report scores–is free. For less than $30/month, users can get an additional dataset or credit check.

King said Nav hopes to incorporate PayPal and other data to the platform so that customers can focus on removing the friction of applying for loans and get approved before they ever apply.

Nav is bringing transparency to credit for the small business owner and solving the credit dilemma.


Written with Nicki Jacoby.

Allen Taylor

How Factor Trust is Setting a New Standard for Alternative Credit Scoring

alternative credit scoring

The big three credit bureaus in the United States are Equifax, TransUnion and Experian. Though there are many smaller and regional players, the big three have a stranglehold on the market. However,  the alternative lending revolution has given an opportunity to smaller, nimbler competitors to offer products for the nascent-but-growing fintech industry. Factor Trust is […]

alternative credit scoring

The big three credit bureaus in the United States are Equifax, TransUnion and Experian. Though there are many smaller and regional players, the big three have a stranglehold on the market. However,  the alternative lending revolution has given an opportunity to smaller, nimbler competitors to offer products for the nascent-but-growing fintech industry. Factor Trust is one of the players looking to create a niche by providing alternative credit data, analytics, and risk scoring information.

Factor Trust, headquartered in Atlanta, Georgia, opened its doors in 2006. Its latest round of funding ended in November 2015, and the company managed to raise $42 million from ABS Capital Partners and MissionOG. CEO and Co-Founder Greg Rable held many high profile positions in companies like PGi and Empagio before embarking on his entrepreneurial voyage, etc. President and Co-Founder Michael Heller served as president of Argus Information and Advisory Services.

Factor Trust has a team of 60 on board. The company has enjoyed rampant growth in last 3-4 years.

What started as a small alternative credit bureau quickly turned into the largest alternative customer tradeline data provider. Factor Trust covers most of the major loan markets including short-term lending, installment lending, nonprime auto, POS finance, and credit cards.

130 million U.S. adults have a FICO score lower than 700, which is why Factor Trust concentrates on the non-prime credit segment. This segment is generally underbanked.  Factor Trust calls them “Credit Climbers” because they are struggling to improve their credit scores.

Factor Trust’s biggest USP is its proprietary database, which has allowed the company to established itself as an alternative credit bureau. Most of the established players in the market focus on repackaging and reselling third-party products, but Factor Trust focuses on in-house solutions. The strategy has been successful as the company has consistently added half a million users per month.

Every new application or inquiry is treated as a new consumer without performance data. Once an application is accepted, performance data supporting the application is then collected. Factor Trust’s data comprises of application and tradeline information, and, with the help of these data, the company is able to get comprehensive knowledge about consumer spending patterns and the types of products these consumers use. Other important information like stability, payment history, and income stream provide additional insight into financial habits of consumers.

The product range is similar to what traditional credit bureaus like Equifax or TransUnion offer, but Factor Trust serves consumers at or below prime whereas other bureaus serve consumers at or above prime. Cross-over lenders in the auto and credit card industries use traditional rating bureaus in addition to Factor Trust while lenders like Installment, POS, and short-term lenders don’t use traditional ratings at all. This highlights that the company is chasing a massive market that is growing rapidly.

Factor Trust continues to develop its products to stay in tune with the regulatory developments and technological changes in the FinTech ecosystem. Expected CFPB regulations in the coming year will make it compulsory for the lenders to determine the borrower’s ability to repay (ATR) before they can provide borrowers with a loan. In order to help lenders meet ATR regulations efficiently, Factor Trust has introduced the Flexible Technology platform. Lenders can quickly compare residual income to the requested loan amount to determine whether a consumer has the ability to pay back a loan. This product will help lenders keep tabs on the factors that trigger a change in a consumer’s credit situation and alter a credit line accordingly. Saving lenders from the hassle of sending multiple file formats to different bureaus, Factor Trust has also developed a CRA gateway, which is executed based on CFPB regulations. This will allow lenders to automatically update all credit bureaus rather than wasting resources on dealing individually with those bureaus.

Factor Trust uses a flexible pricing schedule. Pricing depends on product demand within a particular region. Higher the demand, lower the price, and vice-versa. On average, the company charges a fee of $1-$1.30 per score and can adjust pricing as it does not use third parties to fetch data. Factor Trust has a dedicated team of experts to make onboarding hassle-free. This allows companies to go live in just two weeks. There is no setup or minimum monthly fee. Along with setup, Factor Trust provides scores and purpose built-in different vertical and segments, which no other alternative bureau provides.

The reason Factor Trust is the preferred choice for the alternate lending industry is because it can pull data through its ATR product and also through traditional data from Equifax, presenting lenders with the best of both of worlds. One telling difference between Factor Trust and other bureaus is the updating of reporting data. In Factor Trust, data is accessed and processed in real time whereas other bureaus update performance statuses monthly. This also allows lenders to ensure that borrowers are not attempting loan stacking. With the emergence innovative technologies and short-terms loan products, the technology used a few years ago is obsolete. Therefore, solutions offered by Factor Trust should become the new industry standard in a few years.


Lauren Twardy

Wednesday December 7 2016, Daily News Digest

Wednesday December 7 2016, Daily News Digest

News Comments Today’s main news: Marketplace lending trends in 2017 per Moody’s. Folk2Folk receives FCA authorization. Today’s main analysis: Harvard fellow, Fundera VP say regulate but innovate. Today’s thought-provoking articles:  China tests social credit score concept. Kabbage one of the best places to work in 2017. Adel uses Nxt’s blockchain to unveil crowdfund. United States Marketplace lending trends in […]

Wednesday December 7 2016, Daily News Digest

News Comments

United States

  • Marketplace lending trends in 2017 per Moody’s GP: ” Amazing insight here : quality of loans in 2017 will remain unchanged because while underwriting quality is growing, new channels for borrower acquisition will offset those gains. “
  • Harvard fellow and Fundera VP encourage regulation. AT: “If Mills’ and McCarthy’s suggestions are followed, it would only be a matter of time before top marketplace lending executives sit on the board of the regulatory agencies themselves–OCC, SEC, FDIC, FTC, CFPB, and NCUA.”
  • Kabbage earns recognition as best place to work. AT: “Generally, these awards mean nothing unless you are a job hunter looking for a place to become a contributor. However, considering the rough year the industry has had, it’s good to end it on a positive note. Kabbage employees are proud of their work environment. Maybe this will lead to more people looking at alternative lending firms as potential employers, which could play a part in the industry’s growth.”
  • Online lenders as disruptive as Spotify? AT: “This sounds like the lead-in to a punchline, but Ron Suber actually said this. I have to agree with GlobalCapital’s position. Banks have been much more responsive to the changing marketplace than legacy musical companies were with Spotify.”
  • Anthony Hsieh talks about regulation and technology.
  • 2017 alternative investing strategies for advisors. AT: “This is a video that will take up about 3 minutes of your time.”

United Kingdom

European Union



United States

MPL ABS growth likely, subject to strong macroeconomics (Structured Credit Investor), Rated: AAA

Marketplace loan ABS performance will generally remain stable into 2017, with loan originations and issuance growing, according to Moody’s. The agency adds that the marketplace lending sector will use 2017 as a year to rebuild its tarnished reputation after a series of negative developments in 2016.

Moody’s goes on to say that the quality of unsecured consumer loans in new deals will be essentially unchanged because lenders’ underwriting and practices for these loans will be generally stronger amid greater sector scrutiny but this will be offset by shifts in acquisition channels.

The agency expands on this saying that SMEs tend to go to marketplace lenders when they have weak business performance history or need liquidity quickly and banks cannot reach that demand. Moody’s therefore suggests if banks can improve their ability to offer timely loans, more SME marketplace loans available for securitisation could come from struggling businesses, which would expand adverse selection in the deals.

The rating agency adds that the asset performance of outstanding deals is overall stable, with deals’ notes continuing to perform strongly, and student loan deals having ongoing low default rates.

The legal and regulatory landscape will, however, continue to cause uncertainty in the industry, but any new developments will only have a modest impact on the sector or be incremental in nature. The agency adds that SME marketplace lenders will face the highest risk of disruption from regulatory or enforcement actions on the state or federal level.

The agency suggests that originations and securitisation issuance are likely to rise next year, but adds that this depends on several factors like financial market conditions and how well the industry can meet its evolutionary challenges. Moody’s adds, however, that any economic weakness, significantly weaker loan performance or financial market disruptions “would likely significantly slow loan volumes” and states that “as the US interest rate normalisation process resumes, there is a risk that financial market volatility intensifies, with a synchronous repricing of assets globally.”

Karen Mills, Harvard: Regulate, But Allow Online Lending Market Space to Innovate (Crowdfund Insider), Rated: AAA

Senior Fellow at Harvard Business School Karen Gordon Mills along with VP of Strategy at Fundera, Brayden McCarthy, have recently posted a working paper on SME lending.

The intent is to highlight the obstacles and opportunities for SMEs, online lending, and regulatory bodies.

This  current phase is transitioning into a new one, as conversation about disruptive Fintech firms threatening to take over traditional banks come to an end.

In attempts of untangling this alphabet soup and legal morass, Mills and McCarthy have a set of recommendations for regulators navigating this new small business online lending market:

  1. Create a National Non-bank Charter Option for Online Lenders. The Internet is not bound by any one state, and the market for loans online is no exception. (something the OCC recently created)
  2. Set Universal Rules and Guidelines to Strengthen Borrower Protections. An important precondition of a national charter should be the creation of new rules, universally applied, that create borrower protections for small business borrowers.
  3. Develop Joint Guidance on Third-Party Vendor Management. Partnerships between banks and new entrants are already emerging, and are likely to grow, provided that regulators allow it.
  4. Brokers Should Respect Fiduciary Duties. As with mortgage brokers, and more recently with investment brokers, loan brokers offering individualized advice should act in borrowers’ best interest, respecting fiduciary duties of disclosure, loyalty, and prudence.
  5. Shine a Light on Borrower Outcomes by Mandating Disclosure of Originations, APRs, Default Rates, and Borrower Satisfaction Across the Small Business Lending Market. This would entail collecting specific data from market players on their small business loan transactions, such as average APRs and default rates.
  6. Create a National Advisory Board on Responsible Financial Innovation. This body would be a coordinated effort by the major federal regulators involved, including the Federal Reserve, OCC, SEC, FDIC, FTC, CFPB, and NCUA.”

Kabbage Named One of the Best Places to Work in the U.S. for 2017 (Street Insider), Rated: A

Kabbage, earned its first Glassdoor Employees’ Choice Award, ranking 28th on the Best Places to Work list for employers with fewer than 1,000 employees.

Now in its ninth year, the program selects winners based on feedback employees have shared throughout the past year about their jobs, work environments and companies. Employees complete an anonymous review that captures their overall satisfaction as well as qualitative insights into the best reasons to work at the company.

To be considered for the small and medium company category, a company must have fewer than 1,000 employees and have received at least 25 company reviews from U.S.-based team members during the period of eligibility. The final list is compiled based on Glassdoor’s proprietary algorithm, which considers quantity, quality and consistency of reviews.

Online lenders as disruptive as Spotify? Probably not (GlobalCapital), Rated: A

“Think about the music industry – Spotify, iTunes, Pandora. They all started out with a different premise. You can stream it, you can download music and listen to it online or offline. The music industry is evolving and so is our industry,” (Ron) Suber said on a panel at the December 1 conference on marketplace lending.

“You’re going to see each of the platforms learn to roll with the changes of the industry and that includes some concept of the silver bullet – is it balance sheeting, is it the hybrid model, is to peer-to-peer? The music industry is evolving, and so are we. It’s really the people who thought we’re going to buy CDs that realized it’s never going back. And that’s my point to this industry – it’s changing and we’re not going back to the old way of walking into places and asking for money,” Suber added.

Suber is right in pointing out that the marketplace lending industry has changed consumer lending. But his analogy comparing the current state of marketplace lending to apps like Spotify is premature. Although 2016 has been a momentous year for the industry, marketplace lending has not disrupted traditional banking in anything like the same way the internet and music streaming services upended the music industry.

Rather, the relationship between marketplace lenders and banks is one of mutual dependence – smaller platforms need to partner with banks to help them expand their borrower footprint, while some larger platforms need to use banks to originate loans.

Banks, on the other hand, need to leverage these platforms’ technologies and lending algorithms in order to improve their customer service.

Chairman Anthony Hsieh talks technology, regulation & capital markets at Marketplace Lending & Alternative Financing Summit (LoanDepot), Rated: A

“Going forward, the real barrier to entry for lenders will be technology,” Hsieh said. “Not regulations.”

At the end of the day, Hsieh commented that category leaders will be tech-enabled lending platforms that have scale in the market.

“It’s going to be very difficult to find capital for alternative lending moving forward,” Hsieh added. “Those who cannot wait for the liquidity to return will consolidate or cease to exist. Lenders who have the agility to pivot within the pie have an advantage over mono-line lenders in that they can leverage more overall lifetime value from borrowers.”

2017 Alternative Investing Strategies for Advisors (NASDAQ), Rated: B

United Kingdom

Folk2Folk Receives Full FCA Authorisation (Crowdfund Insider), Rated: AAA

Peer to peer lender Folk2Folk has received full approval from the Financial Conduct Authority (FCA).  While many prominent peer to peer lenders are operating under interim approval, Folk2Folk points out it is the lagest P2P lender to receive full authorization to date.

The South Wales based P2P platform labeled full authorization as a major milestone for the business. Folk2Folk may now look to offer the Innovative Finance ISA (IFISA) to customers, subject to HMRC approval.

Growth Street launches peer-to-peer lending for individuals (Bridging&Commercial), Rated: AAA

Alternative banking provider Growth Street has become an appointed representative (AR) on the Financial Conduct Authority’s (FCA) Financial Services Register.
The announcement means that Growth Street will be able to accept individuals as investors on the platform, which will increase its range of investors.
Growth Street has partnered with Resolution Compliance to allow it to expand its activities while continuing with its own direct peer-to-peer application with the FCA.

Zopa with New Look (P2P Banking), Rated: A

Today Zopa launched a new design for the website and introduced a new logo, which I find very simplistic.

Zopa says:

This fresh new identity will give us a springboard for our ambitious plans to bring our products to even more UK consumers, and create radically personalised services that will help people fully realise their financial potential.

Very first opinions voiced by investors on the new design are mixed.

Major Players in the UK P2P Lending Market (TechBullion), Rated: A

This list presents the company profiles of some of the major players in the UK P2P lending market.

Zopa is a peer-to-peer lending platform, which uses the internet to get rid of the banks entirely.

RateSetter allows savers to lend to individual borrowers. Last year, Ratesetter was the largest peer-to-peer lender in the UK.

Funding Circle’s allows savers to lend directly to businesses, getting rid of the banks. Therefore, it provides more favorable interests rates than traditional banks.

LendInvest is the leading online platform for property lending and investing. The company offers an online platform for institutions and people to invest in loans against property.

Wellesley & Co is a top alternative finance platform that allows investors to make good returns on their capital in the form of good interest rates by linking them with creditworthy borrowers looking for a competitive source of funding.

Assetz Capital is a peer to peer business lender that is active in bridging, SME finance, and property development sectors. is an online platform that links creditworthy businesses with savers who lend money in exchange for an attractive return.

FundingKnightis a crowdlender that brings business borrowers together with institutional and private investors.

Lending Works is a P2P lending platform based in London. It was the first P2P lending platform that has insurance to protect its investors against borrower default, using the “Lending Works Shield”.

QuidCycle provides a direct lender to borrower service that gets rid of the traditional middlemen in financial transactions.

LendInvest Announces Four New Dates For Property Development Academy Course (Crowdfund Insider), Rated: B

LendInvest, a leading online mortgage lender in the UK, announced last week new dates for its Property Development Academy course.

The dates are the following:

  • January 20th- 21st
  • April 28th-29th
  • July 7th-8th
  • October 13th-14th
European Union

Adel Fintech Incubator Unveils Crowdfund Using Nxt’s Blockchain (Forbes), Rated: AAA

Adel, a technology incubator for blockchain innovation, dedicated to what its founders from the Czech Republic assert will “deliver a resilient ecosystem for its community” with a mandate to evaluate start-ups, has announced its intention to embark on a month-long crowdfunding exercise from March 1 2017 through an Initial Coin Offering (ICO).

The incubator, which is launching a website to support its initiative, is an infrastructure aimed at developing, supporting and funding innovative start-ups using blockchain technology and based on the Nxt community platform.

Essentially, Nxt provides a Blockchain-as-a-Service (BaaS) platform, which Adel viewed as ideal for blockchain innovation after researching the cryptocurrency market.


Mum and dad investors shift $ 45 million from banks into P2P loans: RateSetter (The Sydney Morning Herald), Rated: A

Thousands of retail investors are pumping cash into peer-to-peer lending, with RateSetter reporting about $45 million has been taken out of bank accounts and lent directly to borrowers.

The online lending platform, the largest in Australia accepting money from retail investors, has recently hit the milestone of having 5000 investors, helped by the very low interest rates being paid by banks.

RateSetter’s Australian arm expects this number to double in the next six months.

RateSetter chief executive Daniel Foggo said more investors were starting to view a P2P loan as a “mainstream” asset class.


China’s New “Social Credit Score” Brings Dystopian Science Fiction to Life (Futurism), Rated: AAA

The Chinese government is taking a controversial step in security, with plans to implement a system that gives and collects financial, social, political, and legal credit ratings of citizens into a social credit score.

Proponents of the idea are already testing various aspects of the system — gathering digital records of citizens, specifically financial behavior. These will then be used to create a social credit score system, which will determine if a citizen can avail themselves of certain services based on his or her social credit rating.

“China has a long way to go before it actually assigns everyone a score. If it wants to do that, it needs to work on the accuracy of the data. At the moment it’s ‘garbage in, garbage out,’” explained Wang Zhichengof Peking University’s Guanghua School of Management.

Of course, supporters of this system have their reasons, including developing a unitary system for granting citizen’s access to financial services, given that 1.3 billion Chinese don’t own a credit card.Besides, the government assures that the system would “allow the trustworthy to roam everywhere under heaven while making it hard for the discredited to take a single step,” as The Wall Street Journalreports.

Online lending platform denies leaking nude photos of female users (Odisha Sun Times), Rated: A

After the naked pictures of over a hundred female users of an online lending platform in China went viral last week, the company denied it posted the pictures, the Global Times reported.

The People’s Bank of China, the central bank, is reportedly studying ways of collecting and distributing data on how funds raised online are being used because of the risks posed by unregulated lending.


George Popescu
Allen Taylor

How Online Lenders Can Reduce Default Rates, Increase Margins, and Remain Competitive


In recent years, the SME lending ecosystem has evolved at a rapid pace. As more competitors entered the market, there has been an interest rate reduction across the board. After the 2008 financial meltdown, the market tilted toward a more conservative credit outlook causing default rates to fall and start-up rates to decline. SMEs employ […]


In recent years, the SME lending ecosystem has evolved at a rapid pace. As more competitors entered the market, there has been an interest rate reduction across the board. After the 2008 financial meltdown, the market tilted toward a more conservative credit outlook causing default rates to fall and start-up rates to decline.

SMEs employ more than 50 percent of private sector employees and generate 65 percent of new private jobs. They also represent 98 percent of U.S. exporters and 34 percent of U.S. export revenue. When banks withdrew from the lending sector after the financial meltdown, alternative lenders stepped up to capture the $4.4 trillion dollar market. Still, there is latent demand for affordable pricing and a time-sensitive, hassle-free experience for business borrowers, leaving the market under-penetrated. PayNet rose to fill this need by helping lenders mitigate risk and leverage alternative credit data.

More than just a credit agency, PayNet measures the health of a business using sales, production, and other business data, provided mostly by lenders who in return gain access to an overview of global credit information.

Why It’s So Hard for Alternative Lenders to Compete

Banks have better access to customers due to regular deposits and other banking activities. Online lenders, however, must use innovative channels to reach their customers. Instead of cutthroat competition to steal each other’s business, online lenders look for creative ways to compete. One approach used involve aggregators, which act as middlemen for the lender and the borrower. Another approach is bank partnerships. For the market to grow, everyone needs a common view of the system. While there is enough business to go around, the most important thing is to build a robust system that will help the industry grow.

A slowing economy and a small secondary market are two other reasons it is hard for SMEs to access capital. A few marketplace lenders have joined the SEC, but not many. A lot of lending companies are struggling due to inability to compete at scale. Securitization is gaining momentum, but because there are so few players, it is still at a nascent stage. In recent years, the mortgage market has become more sophisticated and serves as a great opportunity for borrowers. But because of the emergence of new players, there is more standardization. It took lenders a few years to understand the importance of brand and consistency. As a result, they have now offer recognized products with more consistent terms. PayNet envisioned this long ago and developed products like the Small Business Lending Index and the Small Business Delinquency Index to help companies optimize the underwriting process.

How PayNet Solves the Problem for Lenders

PayNet has always been an advocate for equality and industry best practices. Hence, they are a member of a coalition formed by lenders in favor of transparency. PayNet intends to help the CFPB understand the small business market and lending industry disparity so the CFPB can create better regulations.

To stay true to its reputation, PayNet developed MasterScore for the alternative lending market, the first of its kind. Other companies are trying to replicate the model or make one of their own. MasterScore data was taken from FinTech companies in order to reduce the lender default rate.

Headquartered in Skokie, Ill., PayNet opened its doors in 1999. Founder Bill Phelan holds a CFA degree. Prior to starting PayNet, he managed fixed income securities for Trustmark Insurance Company. He also advised privately-held companies on acquisitions and valuations. Under Phelan’s leadership, PayNet has grown into a firm with the largest collection of commercial loan and lease payment histories. The company has collected data on more than 23 million privately held businesses in the U.S. and Canada including their cumulative GDP. Using a subscription-based model, PayNet has realized a 10x return on investment while transacting more than $200 billion in business.

Because Fintech offers quick accessibility to cash and lenders, all kinds of borrowers apply for credit. On the other hand, lenders want more loan applications. With PayNet, they can demystify borrower creditworthiness in a few minutes. All they need to do is enter a name, address, or business name and all the information they need is at their disposal.

With delinquencies on the rise and increasing default rates, there is a growing need for online lender vigilance and caution. Therefore, PayNet is a strategic product essential for lenders to ensure default rates do not destroy margins.

Written with Heena Dhir.


Allen Taylor