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Alternative Lending Fueled by Proprietary Knowledge

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March  26, 2013

By Bob Coleman
Editor, The Coleman Report

We discussed proprietary knowledge with alternative small business lending databases with Glenn Goldman, CEO of Capital Access Network and CapTap.

Bob Coleman: Hi we’re with Glenn Goldman, CEO of CapTap, an alternative lender out of New York. Glenn, welcome.

Glenn Goldman: Thank you pleasure.

Bob: $3 billion in loans, tell me about that.

Glenn: We started 15 years ago with a singular focus which has not changed, and that is access to capital for small businesses. Simple, intuitive, and friction less. It took us about ten years to originateour first $1 billion of funding. Three years to originate the second billion. Two years to reach the third, we just celebrated that the other day. We will originate our fourth billion in less than twelve months. So the need is very real and the ability to manage risk across economic cycles is very real and tangent.

Bob: How easy has it been for you to learn how to manage risk?

Glenn: Well it’s a function of the data so I wouldn’t suggest that it’s been easy. What I would suggest however is that requires a very disciplined approach to gathering information. We were collecting big data before it was sexy to call it big data. We like to refer this as smart data. It was a challenge, we tested our data and scoring models with $3 billion of our own capital.

Bob: Give us a taste of some of your data points that you embrace that traditional banks would not touch.

Glenn: At the core level, our scoring models are composed on three basic sources of data. Number one is information that it publicly available, that could be a trade score or otherwise. Number two is information we get from a small business owner. None of those two things are proprietary. What is proprietary however, is $3 billion of profiles, of actual experience with tens of thousands of small businesses over three economic cycles. 650 types of differentbusinesses throughout the United States. That is what is incredibly unique, proprietary, and potent. Let me tell you what that means. When you get a FICO score and your score is 650, what does it tell you? Well we know it’s better than 600, it’s not as good 700. But it doesn’t tell the financial viability of that small business. In fact it’s a personal score more than a commercial score. With our scoring model we might give a score of a seven to a small business owner. What does seven mean? Well it has a very real meaning. Of the two thousand identical profiles that we have funded over the last 15 years that look exactly like this customer. Seven out of every one hundred are not going to perform. That is very real, tangible and actionable information that our sales and our bank partners are starting to latch onto.

Bob: Give me your sweet spot type of a deal.

Glenn: We will fund anywhere from $2500 to $150,000 to 650 different types of businesses, from 24-36 months of funding with incredibly flexible customized terms. I would like to think we have a sweet spot but our worldview is that every small business owner has a right to access capital and that’s our go to market strategy.

Bob: Criticism of alternative lending is rate. Traditional banks see you as being usurious. How do you respond to that?

Glenn: Well that’s what alternative used to be. Alternative now is mainstream. It’s mainstream now because it’s all about assessing and managing risk as well as delivering a better user experience. What is unique and powerful about CapTap is we have all this incredible data, systems and technology which allows us to take an application and make a decision in less than two seconds. Now the application process might take 20-40 minutes. But through an online experience we can condense that down to 6-7 minutes and deliver the optimal user experience which to us means a great application process, the ability to approve, deliver terms and say yes and fund in the same day. Then we can continue that great user experience throughout the life cycle, 70% of our customers renew with us. We are very proud of the ability to take that definition of user experience and spread it out throughout the small businesses life cycle, and CapTap can deliver the optimal user experience online with rapid decision and same day funding.

Bob: Great, Glenn Goldman, CEO of CapTap, thank you.

Glenn: Thank you.

Watch the interview here

 

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