Intuit recently unveiled QuickBooks Capital, a new small business lending product that provides users of QuickBooks access to small business loans up to about $35,000. This new service’s lending process is done using algorithms from within QuickBooks itself. Thanks to Intuit’s big data and machine learning techniques, most borrowers will know whether or not they are approved for a loan in just a few minutes. In this article, Steve King, a partner in Emergent Research and a regular contributor to SmallBusiness.com explains how this and other data-driven lenders are helping small businesses access loans.
Lack of credit is consistently one of the top challenges for small businesses. And for new businesses (those that have been in business less than 5 years), the challenges are even greater. According to the Federal Reserve of New York 2016 Credit Survey: Report on Startup Firms, 70% of young businesses say they need funding to grow. But only 23% of these firms are successful at getting all the funding they are looking for.
70% | Percentage of new businesses say they need funding to grow
26% | Don’t apply
21% | Get rejected
30% | Get partially funded
23% | Get funded
Source: 2016 Small Business Credit Survey. Federal Reserve Bank of New York
Insufficient credit history is why young companies find it hard to get funding
Simply put, they haven’t been around long enough to establish a strong enough track record for lenders to be comfortable providing them credit. And even if they get the credit they’re looking for, small business satisfaction with the lending process is not good
Percentage of successful borrowers who are satisfied with their experience at various lending sources
48% | Small banks
31% | Big banks
23% | Online lenders
How Intuit uses anonymous data to approve loan requests
Intuit has over 2 million small businesses that have agreed to allow the software company to analyze anonymized data in an aggregated format to develop products like QuickBooks Capital. This means Intuit can analyze 28 billion data points in its credit model. (QuickBooks users own their data and have to provide Intuit permission to use their data in this manner).
This database of income-statement, balance sheet, cash flow and transactions data allows Intuit to fully analyze the current financial state of a small business and predict its ability to pay back a loan. It also means Intuit’s credit model has enough data to allow them to lend to young small businesses, even those that have been around less than one year.
Based on the service’s beta customers, this approach is broadening credit availability and making it easier and quicker to get a loan.
Analysis by Intuit of its early QuickBooks Capital borrowers
46% | Had never applied for a loan before.
60% | Would likely have their loan application rejected elsewhere
90% | Say the loan helped their business grow