Tim Stenovec: Michael, Amazon Lending is an invitation-only program and it makes loans for companies that may have difficulty landing traditional business loans - when you saw this news last week, this expansion of Amazon's program, what was your first reaction?
W. Michael Short: My first reaction was excitement. Any opportunity to provide capital to small businesses is a positive in my book. 3,000 small businesses are declined for credit every single day, not because they're not creditworthy but because they applied to the wrong source of financing, and that's what we're working to fix.
Tim: Let’s talk about how your approach is different than Amazon’s.
WMS: Absolutely. For the first time in the nation's history, small businesses are able to apply to the continuum of 14,000 community banks in this country. So, for context: how does it work right now? Small business needs to identify where they’re going to apply for this financing. They go to one, they go to the next, they go to the next. In terms of banks, on average they apply to three financial institutions for financing, or in most cases, they give up. So for us right now, what we're able to do for the first time is connect them with the best source of capital so they're able to apply, get matched, and get their capital on the first attempt.
Brad Smith: What’s the reason that they are denied and they’re not getting that transparency that they need - once you’re able to work with them and kind of figure out exactly why they weren’t given the loan that they needed, what’s the most common reason?
WMS: Absolutely, so it’s pretty simple: each of these community banks have different requirements and types of businesses that they support. You're trying to do your food truck in Brooklyn; how would you ever know that the small community bank in southern Wisconsin is the best match for you? You’d never know that. That's what we help them with.
Tim: Let’s talk about the tech behind the platform. What kind of tech are you using to help businesses with funders?
WMS: Absolutely, so inherent to this entire situation is relationships, between the community bank and the small business. A lot of times it becomes impersonal, and that's where this disconnect occurs. Karen Mills at Harvard published some great research, she used to lead the SBA; there is this giant disconnect between the small businesses and the community banks, and what we're able to do is use the algorithms of this matching technology, and we've built on that over the last few years, to be able to connect them with the right source on the first attempt.
Brad: And so, two part question: First part of it, there’s a certain credit score that comes into play with this as well: how much does that weigh on the initial decision, and how can some of these small businesses still find the bank to work with using your system as well? How much does that play a role?
WMS: Each of these community banks has different requirements, different types of business they're looking to support, so whether their credit score is lower or whether it’s higher, there is usually a bank that's willing to support them. The problem is identifying that match. The application process - each of these applications take 33 hours to fill out all the paperwork, and like I said, three applications per business, that's almost 100 hours wasted - not building their business, but on paperwork. A lot of times this paperwork is the same paperwork, but just in different forms, over and over and over.
Brad: One of the big things that we look at within the Fintech space is how so many different businesses are trying to incorporate blockchain and figure out a way that that can create the right ledger system so that these banks or these small businesses are that much more credible or reputable, based on the past transactions that they’ve done. Do you see that as something that’s weaving into your technology, into the fold, very rapidly - is that on the horizon?
WMS: Absolutely, on the horizon. One of our major investors made his fortune in Bitcoin and sees the future in engaging these community banks and using this type of technology to expedite this process, whether it's contracting or connecting or what have you, and that's exactly what we're working on.
Brad: Are you allowed to tell us who the investor is?
WMS: Not yet, no.
Tim: What are the rates that you’re seeing, Michael - I mean Amazon we know reportedly has rates between 6% and 14%, are yours competitive?
WMS: Absolutely, that’s very competitive. I’d say that you’ll get the most competitive rates from the responsible, transparent and trusted nonprofit lenders, the community banks, and it is in that ballpark - as opposed to so many small businesses, one in five, that are applying to predatory online lenders.
Tim: What is Amazon getting out of this - why is Amazon doing this?
WMS: I think it’s a great way for them to be supporting their merchants. It’s a great way for them to help their merchants grow their businesses and in turn, help Amazon grow - it’s mutually beneficial, and that’s what we’re all about at SourceFunding.org.
Brad: In terms of the small business partnerships that Amazon has created over the course of history, what is the biggest problem area for why they need to get more funding that you’ve found, at least in terms of why they need these small business loans or the additional capital?
WMS: Well, in many instances it's an issue of capacity - many of the small businesses that we work with need to bring on additional staff to be able to grow. I'd say that that's a large majority - they want to be able to bring on new staff, they want to create jobs, and they have that challenge of identifying where they can get that capital - the low-cost capital, not the predatory online lenders that are just doing a horrible disservice to the American small business owner with misleading information, it truly is a disaster.