By: Pearl M. Kasirye
Lending is an integral part of almost every all industries. Most start-ups will require an initial cash boost to kick-start their business before they are entirely self-sufficient.
Most of the most successful businesses now will have engaged in a lot of borrowing in their first few years of operation.
However, it’s possible for heavy lending to go wrong, so lenders will do heavy research on the financial health of the business or consumer before they hand out credit. This helps avoid businesses crashing into debt due to unhealthy borrowing.
This makes data an integral part of the lending industry to lenders. Without data about businesses, lenders would be unable to gauge the reliability of borrowers.
However, the traditional process of giving out loans may be outdated and not fit for purpose in this era of quickly growing businesses. Read on to find out how Settle has changed their process of loaning out money to make getting loans faster and cheaper. This is based on the How to Lend Money to Strangers podcast interview that revealed some interesting insights on this topic.
Problems with the Current Lending System
Lenders will want to avoid borrowers who are unlikely to afford repayments or pay the loan back on time. To do this, they will need to know more about the business and its’ history. Therefore, they will have to request this data themselves.
This is usually done through a long process of filling out forms and investigating previous transactions. Therefore, the application process for a small business loan is incredibly long. Furthermore, acquiring all the data can be pretty expensive as well.
This data may not even be fit for purpose. Financial reports have some valuable data, but they do not tell the whole story of the businesses. So the data takes a long time to collect and isn’t even fit for purpose.
This will slow down the progress of businesses since most firms applying for credit won’t do it as soon as possible. Immediate credit can fuel super growth since the business doesn’t miss out on any opportunities in the market.
How is New Software Making This Process More Seamless?
Settle has changed their lending process to make it both faster and easier to get credit. They’ve solved this problem by skipping out lengthy financial reports and acquiring data straight from the source.
Settle uses a new system of function as an accounts payable software system and a lender. This means they already have many invoices and accounting data from the firm.
This allows them to underwrite a business, which is basically paying for any capital that the business buys over a period. The businesses then agree to pay for this period in a set amount of time.
This allows for frictionless credit where the Settle continues to underwrite the business in the background. Therefore, the business experiences a seamless cash flow where they can now buy their working capital or stock and pay for it with their revenue from the sales.
How Does This Benefit Businesses?
This new seamless credit is much more beneficial for businesses because they can immediately capitalize on booms in the market and then pay for any loaned money with their increased revenue.
An example of this was seen in the COVID lockdowns, where online businesses saw a massive boost in demand. Many businesses could not pounce on this because they couldn’t afford the stock or didn’t have the capital to keep up.
With Settle’s frictionless lending, they could buy the capital or stock straight away and then pay it off with their revenue. Overall, this would increase revenue because of the boost in demand.
Seamless lending allows for much higher levels of growth because firms do not have to spend weeks waiting for a loan to boost the capital in their businesses. Therefore, they would grow much faster with a frictionless cash flow.