The problem with finance isn’t that 80% of finance experts can’t beat the market, it’s that we make everything so inaccessible to the average layman. You cannot convince the general population to entrust you with their hard-earned money unless you can convince them that you have an advantage over them when it comes to information. The way money managers used to do it is to use a lot of cryptic terminologies so that people are discouraged from trying to figure out something that is inherently simple. Words like these make most people log out immediately, including us:
In today’s world of millennial investors, you can’t use harsh words like these. You need to explain these complex financial topics using more friendly and accessible words because today’s young people are too
lazy busy learning themselves. According to a recent article in the Financial Times, the Robinhood online broker who caters to millennials discovered that his clientele had a difficulty understanding how interest rates work so they switched to a fixed monthly fee for margin loans (roll my eyes). If you’re having trouble figuring out an interest rate, the last thing you can do is margin trading.
The key to remember here is that fintech companies can now create business models around repackaging long-standing financial products and make them more accessible to millennials – in other words, dumb them down. One of those companies we encountered is Fundbox, which offers a small business loan product often referred to as “factoring”.
Factoring for millennials
In its most basic form, Fundbox enables small businesses to access credit in minutes. In the big bad real world, this is something finance people call “factoring” and it has been offered as a financial product for quite some time now. The concept is actually quite simple.
Say you have a business that sells beard wax to retail outlets. One of your salespeople just managed to sell a case of beard wax to Levi’s for a “beard wax and skinny jeans combo” he is offering. Now suppose you sold this case of beard wax for $ 2,300 and sent the invoice to Levi’s with
Net 30 Payment terms a note that asks them to pay you within 30 days or else your feelings will be hurt. While you’re waiting for Levi’s to pay, you need some cash to purchase more inventory from your wax supplier. This is where Fundbox comes in. They know Levi’s isn’t going anywhere and there’s a 99% chance they’ll pay their bill. Fundbox then pays you the $ 2,200 and waits for receipt of the invoice, at which time it will receive $ 2,300. This is how factoring works.
So the most important question you should be asking yourself now is how much are you going to be charged for this “factoring” product? Fundbox has an online calculator that tells you what “weekly payments” you can expect:
Here we see another case where the interest rate is obscured by a mention of a weekly payment. However, we showed the numbers above to one of our MBAs and she said that works out to an annual interest rate of around 4.7% which is just great. It also implies that they’re going to be a bit particular who they’re loaning money to, which we found out after ourselves. You can see how this is quite different from a simple small business loan because the risk here is quite low. Over 50,000 small businesses have used Fundbox, and you can literally get money the next business day in three easy steps:
If you are like us and run a business that just doesn’t have a lot of outstanding accounts receivable then you might like our next business that specializes in providing unsecured business loans to small businesses without credit. The business model has been so successful so far that they have in fact achieved Mythical Unicorn status (they are valued at over a billion dollars in other words).
Update 05/26/2020: Fundbox has raised $ 20 million in additional Series C funding. This brings the company’s total funding to $ 453.5 million nowadays.
Small Business Loans Quickly Without Credit
Your business credit score is very different from your consumer credit score in many ways. The most notable way is that when you start a new business you don’t have any established credit. While some banks take a look at your personal credit score and use it as a guide, the truth is that the day you started your business, you had zero credit. This makes it very difficult for some businesses who only need short term loans to help them run their operations more efficiently.
This is where Kabbage comes in. Founded in 2009, the Atlanta startup Kabbage has taken a huge $ 238 million in funding so far from investors who include the largest technology fund that exists today, Softbank. On top of all that funding, Kabbage also closed a $ 500 million line of credit in March of this year. Like Fundbox, Kabbage wants to know everything about your business by checking your bank account. After going through all your transactions, it starts asking questions about other services you could use:
If you are unsure of providing all of this information, remember that it is used to determine an instant credit score. The actual time they spent processing our application was literally 3 minutes before we qualified for a $ 50,000 loan. From the moment we landed on their homepage until the moment we added our bank details to receive a $ 50,000 loan, there were less than 10 minutes of people. It’s incredible. Of course, all speed comes at a price. We were given 6 month and 12 month payment options. Here is the 12 month option:
We would probably let our MBAs starve to death before paying a 33% interest rate, but even with these fees, more than 100,000 companies have used Kabbage’s services to borrow more than $ 3 billion. You know how people say things like “oh it’s ok, i’m just going to debit it from the professional account“? It’s the same kind of attitude that makes people feel good about fees like this. Plus, let’s face it. With the small business failure rate, Kabbage is just doing the right CYA (Look for it) to ensure they can operate a profitable business in a high-risk lending space.
The other cool thing to note is that Kabbage is aimed at online retail businesses who may need cash up front to purchase inventory. They allow you to connect your Etsy, eBay, or Shopify account so they can actually see your business details and then build some kind of trust by offering you a small business loan.
There are undoubtedly many companies looking to lend money to small businesses. Not only do they collect
interest monthly payments from the money they lend, but more importantly, they get immediate insight into all the financial details of the businesses that sign up. While you might want to check these privacy notices to see how this data can be used, they will likely keep it in-house and use it to sell you products from their affiliate partners, as the AI algorithms they will start. inevitably to use will know exactly what you need, when you need it.
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