Does Fintech work for Small Business Lending?
Is Ondeck so confident in their Fintech that the software literally writes each loan without any human sign-off?
Financial technology companies that use proprietary technology to circumvent traditional financial services needs such as information cataloging and underwriting are experiencing a rapid growth in popularity, both in investors and users. Small business lenders that are regarded as quasi technology companies like Ondeck are under the growing umbrella of companies designated as Fintech. But note that not all companies designated Fintech are serving the industry with streamlined underwriting technology (Billguard and Planwise, two Fintech companies that have nothing to do with lending).
Ondeck and other Fintech lending companies use their own ‘proprietary technology’ to determine the feasibility of lending on a streamlined basis. So what does this mean? What Odeck is probably referring to is a conditional logic computer reasoning program that takes data from an applicant’s credit score, business financial docs and industry codes to automatically place the lender somewhere on an internal credit risk spectrum. Although using conditional logic software is helpful in the initial underwriting, we believe that human reasoning with facts is the smarter practice when lending to small businesses.
So how is Fintech for lending really beneficial to an applicant? Well, it really isn’t, underwriters use the same process that this program would to make sure an applicant meets all requirements. Besides perhaps a small increase in underwriting turnaround, there is no intrinsic benefit for a loan applicant to use a Fintech lending company as compared to a non-fintech company. Now, this begs the question…what type of technology does a Fintech company have to employ to be considered Fintech? Can an excel spreadsheet with ‘if this, than that’ conditional logic pass as technology?