The Fight for Small Business Finance: QuickBooks vs. Everyone Else


Even though my colleague David Gustin covers such topics in much greater detail on Trade Financing Matters, I find fascinating the early fronts that appear to be forming in the battle for lending and small business financing — beyond the traditional arms of banks, invoice discounting and card programs. The Wall Street Journal recently covered how Intuit’s QuickBooks and OnDeck are partnering to offer loans based on invoice information, receivables and other information contained within a company’s general ledger on the system.

QuickBooks has piloted such efforts to date. As the story notes, “Over the past two years, QuickBooks customers have taken out roughly 5,000 loans totaling about $200 million, with Intuit receiving a referral or origination fee.” These loans have been at high rates, approaching that of the factoring market. The WSJ observes that “loan demand has been modest, in part because many loans carry annual rates of around 30%, well above the 5% to 6% banks typically charge small businesses with good credit.”

The new program will offer lower financing rates, between 8% to 19.9%, for Intuit’s strongest customers. To base decisions on target prospects, loans and rates, Intuit will use average cash balances, receivables and other QuickBooks data to identify borrowers with good credit who are likely to need financing in the next three to six months, the article said. OnDeck will then originate and service the loans.

As we see it, there’s another reason for the rate decrease: Relative small business lending APRs will have to come down over time as competition rises to finance transactions between buyer-led systems and discount offers, supplier network offerings originating within a network, bank lending, merchant cash advances — including PayPal and Square — and vendor general ledger and receivables solutions.

This could be a pre-emptive strike to make risk-adjusted rates become that much more attractive as greater transactional details become available to rate repayment risk. Simply put, suppliers are going to have significant choice, we hope, if they want to either take out a loan, with or without pledged receivables, or discount a specific piece of paper for early payment or cash advances.

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