This post was first published in Corl’s blog on March 27th, 2017 by Mo Yazdani.
In this article, we take a small business lens and look at three high-level pain points in the banking world and some very ambitious companies successfully tackling those pains.
Access to Capital
Much to the detriment of the small business owner, banks have been very risk averse in the last decade. And if you’re a small business with no financial track record, banks are highly unlikely to bet that your small business will be successful enough to make good on their obligations. Like it or not, it is business owners who must adapt to the needs of lenders and investors, not the other way around.
On the rare occasion that banks do give out the loans, they will often ask for backing of the loan by the small business owner’s own personal assets as collateral. They’ll also typically charge high interest rates after 30 days to match the high risk profiles of the small business. In their defence, banks are lenders, not investors.
Much akin to bank loans, venture capital funding and angel investments are very scarce. Not only that, but they’ll often want a high equity stake and a Board of Directors seat, which may not always be what the small business owner wants.
Access to entrepreneur-friendly capital is hard for small businesses & startups. This section focuses on how Corl is addressing this pain point.
The void left by banks and venture capital has given rise to the growth of disruptive alternative lending models, one of which is revenue-based financing (RBF). At its simplest, it’s a revenue-centric model of growth capital (learn more about RBF here).
As a refresher, RBF is when an investor funds a high-growth company and receives a certain percentage of the company’s revenue for a set period of time, rather than receiving an equity stake in the company. It’s reshaping the way early growth business raise capital AND it benefits both entrepreneurs and investors. Without receiving any equity, the RBF investor gets 1–5% of the company’s gross revenue on a monthly basis until a multiple of the fund’s initial investment is paid within a 5–10-year period. This disruptive model of variable-income security is called a “royalty note”. If you bring in $0 in sales, you pay $0 back that month.
With Corl, tech startups and businesses apply for loans online, at their convenience. They can do it online in their pajamas at home if they want to — no need to wait weeks to suit up and see a VC or go to their bank’s local branch.
Banks and VCs may also not be looking at the best data available. Corl is creating an online risk tool that plugs into various sources of company data and accessing financial information through bank and payment integrations. By connecting to accounting systems and identifying verification tools, we leverage intelligent technology to make our choices as objective as possible. Corl isn’t cutting corners when it comes to risk management — we’re making it better.
We also make the decisions in a matter of weeks (unlike banks) and commit to the financing rate up to the credit limit. Our delivery model also ensures that we truly understand the unique needs of each startup we work with.
To make the lives of entrepreneurs easier and better, we at Corl not have only deployed intelligent technology, but have wrapped it in a game-changing business model too. We’re passionate about empowering the modern business owner.
Smart cash management is key to running and maintaining a small business (for cash flow tips, see our previous blog post). Many studies cite poor management as the main reason small businesses fail. This makes financial management a critical “sink or swim” component of running and growing a business.
Sure, banks offer financial management tools but it’s reasonable for small businesses to feel unsatisfied with banking services offered today. Financial management tools should help small businesses focus on growth and the operations, not be a source of friction and pain. Nowadays, digital channels should be leveraged to best deliver these financial management tools.
From Tide in the U.K. to Ferst Digital in Canada, a new wave of FinTech startups are taking advantage of both open banking APIs and the economics of apps to make financial management smoother and more in the line with the digital needs of small businesses. Today, only enterprise clients can afford advanced cash management and treasury services today. With a fully digital banking platform, smaller businesses that would typically not be able to afford these capabilities can now afford these capabilities.
They’ve democratized access to cutting-edge tools and services needed to support and execute decisions that can sometime be make or break for a small business.
Ferst Digital is API-enabled, which allows for quick integration with all existing software in a “plug in and play” manner. Capabilities such as inventory management, budgeting, expense tracking, and accounting management softwares can seamlessly talk to each other in these digital banking platforms.
Companies like Tide and Ferst Digital may not officially be banks (yet!), but they act as business banking services. They’re addressing the friction around financial management.
With the emerging digital nomad lifestyle and the “gig economy”, pretty much any skill is available from the global labour pool. The percentage of digital nomads as a proportion of the population will increase significantly within the next few 2 decades. Gigs come quickly, and these digital nomads can’t always wait days to be paid for their work in the “on-demand” economy. Another use case is paying suppliers in other countries.
Local payroll providers can’t meet the demand of payouts to almost 200 countries in their respective currencies. This is a big deal since more and more small businesses have to think internationally from day 1.
For digital nomads, winning a client engagement and completing the project is no walk in the park in itself — so they really, really do not want to get caught up in payment methods, currencies, and exchange rates. Sure, there’re the likes of PayPal, but they’re not the cheapest option and doesn’t offer the flexibility needed to satisfy the needs of recipients.
So the pressure point here is the lack of smooth, flexible, and low-cost options for small businesses to pay workers across the globe.
Payments Rails is an example of a company that’s filling the mass payout void left by other banking and financial service industry players. With one platform, small companies can scale their business with a global reach. Want to pay your frontend developer intern in Baku, Azerbaijan? No problem. Want to automate your payments to a supplier in Thailand? Sorted. This platform essentially frees up time for small businesses to focus on the important stuff — growing and scaling their business.