September 16, 2015
By Bob Coleman
Coleman C-Suite Report — Main Street Accelerates Trading Speed for Higher Small Business Loan Rates
Last month, I read in Forbes that Paypal will soon pass the $1 billion mark in small business lending.
This paragraph reveals their business model.
PayPal is attracting larger merchants – including those that have access to traditional banks. The company increased its borrowing limits in the spring, to $85,000 from $65,000, and simultaneously upped the amount a borrower could take on to 15% of sales from 8%. The result: Larger merchants have been taking the bite, including some that have access to traditional bank loans that may be available at lower cost but require more paperwork. “I think we always have had customers who have access to banks,” Esch says. “As we move up [in our borrowing limits], more and more of them have access to traditional products. They choose our products over traditional ones, even when a traditional loan is available, because of the speed they can take possession of the funds and because of the way the repayment is tied to their sales.”
Simultaneously, an offer popped up in my Quickbooks account. I was offered the chance to finance up to $5,000 of my receivables through an online lender called FundBox.
I was intrigued.
Now, Intuit, the owner of Quickbooks and Turbotax has a wealth of information on me. I have been a cloud Quickbooks user since 2004.
I use the full range of services — daily downloads of data from my bank and credit card issuers, AR module, AP modules.
From the direct download, I reconcile my business checking account every day. I process a weekly payroll with direct deposits to my employees, and take advantage of the free monthly e-filing service for my state and federal withholding taxes.
About the only thing I don’t use them for is credit card processing. I switched to Paypal last year as a cheaper and better service.
Quickbooks knows everything about my business. They have access to years of past bank and credit card data. They know my payroll taxes are current. They know my monthly deposits. They know my cash balances. With a couple of clicks I can add my retirement savings accounts.
They also have access to my federal and California state returns back to 2004.
So, they don’t need to rely on my numbers, they can use a number of data points for independent verification.
Back to Fundbox. I signed up with their website for an account, and after a few verification emails, was presented with a dashboard of all my receivables. I could choose any combination to finance, up to $5,000.
I chose one invoice for $3,000. The offer was repayment over three months — $250 a week. Fundbox offered a $14.57 weekly fee.
A couple of more clicks, and the money hit my checking account the next day. No paperwork. No credit check. No need for a phone call. No human touch. No hassle.
I’m assuming as I build a track record the credit line will increase. If it gets to be significant, I’ll do some number crunching to see how much money it is costing me to be with a lender that exchanges speed and ease for a lower rate. But for now, I am willing to pay the higher rate than apply for an SBA Working Capital line.
Your borrowers are doing the cost/benefit analysis.
They choose our products over traditional ones, even when a traditional loan is available, because of the speed they can take possession of the funds and because of the way the repayment is tied to their sales.
To finish the story, the $3,000 check hit the post office box yesterday. Fundbox gives me the option to keep the money, and continue with the weekly payments. Or, pay off the advance.
Unlike other programs, cough, PayPal, Fundbox does not charge the weekly fee when the advance is repaid early.
Here’s a recap
8/24/15 — Request Advance of $3,000.
8/25/15 — Cash Deposited into Business Checking Account.
9/2/15 — Debit to Checking Account $250 principal, plus a $14.57 fee.
9/9/15 — Debit to Checking Account $250 principal, plus a $14.57 fee.
9/16/15 — Payoff advance balance of $2,500 plus a fee of $14.57
Fees total $43.71.
APR? Around 20%