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10 06 2015

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10 06 2015

Disrupting Finance Since 1999

Many people believe that “alternative finance” started in 2005. US giant Lending Club was launched in 2007, two years after the arrival of major UK consumer lender Zopa. However, at least one market participant has been around for much longer. National Funding was launched in 1999. As such, it has weathered the 2002 downturn, and of course the 2008 crunch. National Funding is not a “peer-to-peer” platform, but a non-bank lender focused on the SME space. AltFi spoke to Dave Gilbert – founder – and discussed how the world of P2P has changed in the last 16 years, the effects of the recession, and what’s on the horizon for National Funding.

To kick proceedings off, we asked Mr. Gilbert what the biggest operational differences were between 1999 and now:

The biggest difference in 1999 is both the availability and access to data.  There was far less information about small businesses then we have today, and of course, the Internet was only in its early stages.  Business operations were still efficient but ran a lot slower. Technology has helped us make better underwriting decisions, and speed up the process.

One of the main [technological] differences is how we analyse a business. We don’t solely have to rely on business owners’ personal credit score anymore. Our technology platform looks at thousands of data points to determine creditworthiness. These data points look at overall business health, online accounts and social media ratings.”

“Another obvious difference is in the speed in which we are able to do things now. We can underwrite, approve and fund a small business in 24 hours. Speed and automation hasn’t only helped us but has helped our customers, especially in the way they apply for a loan. It’s helped remove the tedious, lengthy process of traditional bank loan applications.

The lack of technology certainly restricted supply. On the demand side, the founder spoke about the lack of public awareness back then:

When we started, the term “alternative lending” was not even used. We spent several years educating small business owners on why they should choose us over banks. During the recession, awareness and demand greatly increased. Now, alternative lending has become the norm and small business owners are increasingly jumping on the bandwagon.

It’s clear that the recession was a big turning point for his businesses. We asked Dave for a little more detail about the effects of the recession. He highlighted the fact that, whilst the recession did raise awareness and boost demand, it wasn’t an instant boost. The important change for P2P lenders was that, whilst loan demand temporarily dried up, bank supply of credit has remained dry:

After the recession banks started to have more stringent lending criteria. They actually weren’t lending to small businesses (and are still not) that needed a micro-loan (between $5,000 – 100,000,000), and there is solid evidence that they have largely vacated the space of less than $1 million.

The small business customer we had in 1999 is the same that we have today. They are in need of growth capital. Even back when we launched, it was tough for these business owners to get bank loans, especially ‘micro-loans’ (under $100K). We were and are still here for them. We wanted to create a solution for the under banked.

National Funding is on an upward trajectory, with 172% growth over the last three years and having loaned over $1 bn to 20,000 small business. We asked Mr Gilbert what his growth plans were:

Right now we lend up to $500K. We want to bring that up to $1M. We are also working on developing micro-ticket products for smaller type companies as well as working on strategic partnerships.”

To finish, we discussed the emergence of rival platforms – clearly something that wasn’t around in 1999, and the effect of competition on business:

“Competition is good. It’s helped to show that there is a need for this type of disruption and small business owners are eager to try a non-traditional source and finally secure the capital they need to sustain and grow their business.

“The competition will also keep helping to drive rates down.”

Interesting stuff, and reflective of the transformation of the industry over the last 16 years. It is hard to believe that the next 16 years will not produce an even bigger transformation in how individuals and companies are financed.

 

By Henry Thomas for AltFi News

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Terms & Conditions

General Acceptance

Any applications submitted electronically shall have the same force and effect as if the application bore an inked original signature(s). The above information, together with any accompanying financial statements, schedules, or other materials, is submitted for the purpose of obtaining credit and is warranted to be true, correct, and complete.

 

US Patriot Act:

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person and business that seeks a business loan. What this means for you: When you apply for a loan, we will ask for your business name, address, and Tax Identification Number. We will also ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

 

For Loan/Merchant Services:

The Merchant and Owner(s)/Officer(s) identified in the application (individually, an “Applicant”) each represents, acknowledges and agrees that (1) all information and documents provided to National Funding, Inc. (“NF”) including credit card processor statements are true, accurate and complete, (2) Applicant will immediately notify NF of any change in such information or financial condition, (3) Applicant authorizes NF to disclose all information and documents that NF may obtain including credit reports to other persons or entities (collectively, “Assignees”) that may be involved with or acquire commercial loans having daily repayment features and/or Merchant Cash Advance transactions, including without limitation the application therefor (collectively, “Transactions”) and each Assignee is authorized to use such information and documents, and share such information and documents with other Assignees, in connection with potential Transactions, (4) each Assignee will rely upon the accuracy and completeness of such information and documents, (5) NF, Assignees, and each of their representatives, successors, assigns and designees (collectively, “Recipients”) are authorized to request and receive any investigative reports, credit reports, statements from creditors or financial institutions, verification of information, or any other information that a Recipient deems necessary, (6) Applicant waives and releases any claims against Recipients and any information-providers arising from any act or omission relating to the requesting, receiving or release of information, and (7) each Owner/Officer represents that he or she is authorized to sign this form on behalf of Merchant.(8) I consent to receive direct mail, faxes, text-messages, and e-mails sent by National Funding and its affiliates for the purposes of transmitting account updates, requests for information and notices, and (9) this request is for business and not for consumer purposes.

 

For Equipment Services:

I hereby certify: (1) the information provided is true and correct, (2) you are hereby authorized to investigate all bank, credit, and trade references, and said references are hereby authorized to release any requested information to you or your nominee, (3) such authorization shall extend to obtaining personal credit profile in considering this application and subsequently for the purposes of update, renewal or extension of such credit or additional credit and for reviewing or collecting the resulting account, (4) this information may be transmitted by us to you and by you to underwriter(s) for the purpose of granting me credit, either electronically or manually, and that by submitting this application, I take full responsibility for transmission thereof, (5) I am over 18 years of age, (6) I acknowledge my rights under the Fair Credit Reporting Act, (7) I consent to receive direct mail, faxes, text-messages, and e-mails sent by National Funding and its affiliates for the purposes of transmitting account updates, requests for information and notices, and (8) this request is for business and not for consumer purposes.

 

Text Messaging:

By providing my wireless phone number to National Funding, Inc., I agree and acknowledge that National Funding, Inc. may send text and multimedia messages to my wireless phone number for any purpose. I agree that these text or multimedia messages may be regarding the products and/or services that I have previously purchased and products and/or services that National Funding, Inc. may market to me. I acknowledge that this consent may be removed at my request but that until such consent is revoked, I may receive text or multimedia messages from National Funding, Inc to my wireless phone number.

  
The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status or age (provided the applicant has the capacity to enter into the binding contract); because all or part of the applicant’s income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. If for any reason your application for business credit is denied, you have the right to a written statement of the specific reasons for the denial. To obtain the statement, please write to National Funding Inc., 9820 Towne Centre Drive, San Diego, California 92121. Funding amount and credit approval is subject to a full credit profile review.