“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 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.
The benefits can be manifold. Extracting a business’ cash flow data is useful in predicting how a loan will perform, giving lenders a heads up prior to issuing loans, according to a report from FinRegLab, a Washington, D.C.-based research organization.
“[W]e want to capture the small-business owner with a system that is unified and that brings all these information flows into their daily life,” Mills said. “And in the process, they have insights into what their cash flow will be and where they need to draw down loans, and what the options are. That’s proven more complicated.”
This content was originally published here.
