The organization: Able Lending is an alternative finance organization at the forefront of small business lending. In 2013, the Small Business Association (SBA) supported the disbursement of $29.6 billion to 54,848 small businesses through various programs targeting industries, regions and individuals that have been traditionally underserved by our financial system. However, for every loan that is approved 9 other loans are denied in the US. These small businesses often turn to friends and family or personal credit cards to finance their operations.
In Silicon Valley we say that this group of entrepreneurs is “unable to consume” traditional financial products because they are too expensive or their credit isn’t good enough or the process is too complicated. Just as Uber disrupted the black car market by making it less expensive and more accessible to a broader base of consumers, Able seeks to dislocate small business lending.
By augmenting the traditional underwriting model to include factors beyond simply your FICO score, liquidity and historical cash flows, such as your business’ ratings on Yelp or how many followers they have on Facebook, and creating a novel financial product that requires a small business to bring 25% of the requested loan proceeds to the table from family and friends, Able is able to lend to applicants that would have been rejected by the SBA. Not only has Able converted these borrowers into consumers, but they have done so while continuing to maintain an expected loss that would be acceptable by much larger and traditional financial institutions.
The challenge: Able is in the fortunate position of having access to substantial investor capital, and has thus been able to make loans off of their balance sheet as they prove their model. However, they do not have a desire to become a bank holding company and will therefore need to raise a credit facility to continue funding their business model. We helped Able complete a thorough market segmentation and sizing analysis that will be used in the credit facility offering memorandum. In doing so we looked through all of their previous loan applications to identify trends and augmented this data with primary research into “underserved industries”. Ultimately we recommended three primary segments and various channels through which Able could target these specific businesses at scale.
The impact: Start-ups are always capital constrained, especially when it comes to human capital. As a team of 10 and marketing department of 1, Able had so much on their plate just to continue to serve their current customers, that they had no time left to actively test new customer acquisition strategies. Over the course of our 5 days with Able we were able to help develop a strategic framework to guide their outbound marketing efforts as well as a specific plan for how they should source their next 100 leads.
While we made good progress and had a lot of direct impact on Able’s forward strategy, what excited us the most is the impact that Able can have on the broader MBAxAmerica community and network. As we spent time on the road, we discovered that many of our partner entrepreneurs struggle to grow their businesses because they do not have access to affordable and sustainable sources of capital. As Able revolutionizes small business lending their impact on the small business community could be huge. We left our one week engagement with the hope that it would lead to more extensive and enduring impact.