When small- to medium-sized business (SMB) owners experienced cash flow problems back in the good old days, it would inevitably leave them in a bit of a pickle.
For a struggling entrepreneur, their few options — if they had any all — would include scrounging from friends or perhaps borrowing from a loan shark at exorbitant rates. Or else they could simply throw themselves at the mercy of their creditors and hope for the best. None of those options were particularly appealing.
“If you take a step back in history, prior to the wave of FinTech lenders popping up, quite a few small businesses — your local nail salon, the florist or the pizza shop — couldn’t access any capital at all,” said Ocrolus CEO Sam Bobley in an interview with PYMNTS. “The banks would historically cater to their biggest customers, larger corporations. There really weren’t many options for SMBs.”
No doubt the loan sharks did a lot of business back then, while quite a few entrepreneurs’ friends probably found themselves out of pocket. Even if the SMB was able to soldier on, it would be a struggle to keep its head above water.
Relief finally arrived when the first FinTech startups catering specifically to SMBs began surfacing, but even then it wasn’t much help. Those initial players in the SMB credit space would more often than not charge very high interest rates. It was, perhaps, better than nothing at all, but far from ideal.
“It was a step in the right direction, but there was lots of room for improvement,” Bobley said.
Inspired by some of those early FinTechs, Bobley set about devising a way to make credit accessible for SMBs on vastly improved terms. His company, Ocrolus, eventually came up with a document processing platform for lenders that’s able to collect all the bits of paper SMBs rely on — bank statements, pay stubs, receipts and so forth — process them and analyze them, so lenders can make faster and more accurate decisions on whether or not a business deserves credit.
“We facilitate the process of assessing a borrower’s financial health, and we have contributed to lowering the cost and increasing the accuracy of processing loans for SMBs,” Bobley said. “That results in lower interest rates, more pricing transparency and ultimately more access to capital for small businesses.”
Bobley said the rise of Ocrolus and similar platforms that help to expedite the underwriting process means SMBs now have countless options to choose from, with B2B payment providers such as PayPal and Square being joined by banks that are suddenly happy to cater to them.
“Banks are realizing there is sufficient technology and data to accurately underwrite these small businesses,” Bobley said. “So, we’re starting to see banks look more into partnering with FinTechs or figuring out ways to work directly with small businesses that previously would have been out of scope.”
Bobley said one of the quirks of the online lending industry has historically been that the first lender to offer a loan is by far the most likely to clinch the deal, even when there are other lenders out there offering far better terms.
“That shows there’s a lot of urgency around accessing capital for small businesses,” Bobley said.
With more credit options for SMBs to choose from, that is slowly changing. Lenders have had to become more competitive to grab a slice of what is a rapidly growing market and increasingly important market segment. And it means SMBs gain more transparency around the different options available.
They’re also seeing more “proactive loan” offers in which lenders make pre-emptive overtures to SMB owners, giving them the opportunity to access capital before it becomes an urgent need. Bobley said he believes this is a positive development as it means SMBs have more control over their financial health.
“It helps because they can be more thoughtful about the terms and the structure of the capital they’re taking into their business,” he said.
If Bobley gets his way, home buyers will get the same opportunities too. Ocrolus has big ambitions to bring its document processing technology to a much bigger business — a mortgage industry that he said he thinks is crying out for the same type of automation.
“We’re making good progress, though there’s a long tail of mortgage forms, tax documents and so forth that are components of a mortgage application that were not part of our purview in small business lending,” he said. “But soon you’ll hopefully see us demonstrate some progress in replicating the success we’ve had with FinTech leaders on a much larger scale, with mortgage lenders and traditional banks who are now looking very urgently at automation technology.”