Rohit Arora, CEO at Biz2Credit comments on why fintech companies that have prioritized lending services will stay ahead of the curve in today’s marketplace while telling us about his journey launching Biz2Credit in this interview:
Can you tell us a little about yourself Rohit? How did the idea of Biz2Credit come about? As a FinTech entrepreneur, what were some of the initial highlights and challenges at the start of the journey?
While working for Deloitte Consulting, I discovered that small business loans made up banks’ most profitable portfolios, and that ethnic-owned firms had the fewest defaults. My brother, Ramit, and I started initially by helping members of the South Asian community navigate through the business loan application process. It can be quite intimidating for an immigrant to go into a bank and ask for money. We helped them overcome language and cultural barriers. We realized that for many business borrowers, the loan application process was frustrating, time-consuming, and often futile.
We created Biz2Credit as an immigrant-friendly online operation that eases access to business financing by connecting small businesses with potential funding sources, including banks, credit unions, and other non-bank lenders. When the credit crunch occurred following the stock market crash of 2008, mainstream businesses began to use the internet to find small business funding when their own banks refused to lend to them. and enables clients to upload, store and update their financial documents online. So, ironically, the Great Recession, played a big role in the success of our business. Since 2007, Biz2Credit has arranged more than $3 billion in small business funding for tens of thousands of companies nationwide.
What are some of the top thoughts you’d share with businesses/small businesses who are looking for loans during this COVID-19 induced downtime?
Many small businesses will be looking to apply for a second round of financing. Word out of Washington is that Congress is working on a PPP2 Bill. There are some business owners who are searching for non-PPP funding, for activities including purchasing a business or a franchise, equipment financing, or construction financing. The advice is the same as pre-pandemic: use the internet to search for a good deal, including digital platforms such as Biz2Credit. Get your documents in order before applying. That means having your 2019 tax filings and at least two years of documents that demonstrate the financial health and viability of your company.
What are your thoughts / observations on the biggest effects of the Covid19 pandemic on small businesses and what would you advise small business owners to do during this time?
COVID-19 has been devastating to small businesses. The plight of the restaurant and hospitality industries is well-documented. My advice is to renegotiate as many deals as you have at the moment. That starts with rents and mortgage payments (if applicable). If your PPP funding has run out, examine your staffing levels. Are you still too heavy? If yes, it might be time to consider furloughs or layoffs, but many small business owners are reluctant to do that.
How according to you can (or should) FinTechs / lending platforms innovate further in the near future to help meet evolving needs of businesses as part of the new normal?
This may seem counterintuitive, but borrowers want speed and convenience just as much as they want low interest rates. In fact, sometimes the cost of capital is secondary in importance. If we have seen anything, it’s that banks that haven’t fully automated need to do it quickly in order to compete. For instance, Biz2Credit’s Biz2X platform quickly incorporated the regulations required by the government for PPP loans and loan forgiveness. The banks that better serviced business borrowers and helped them get PPP funding many times wound up getting the borrower’s entire account as some business owners became frustrated with the lack of service they received from their own banks. FinTech companies are always evolving and need to stay ahead of the competition. Institutions that do not partner with them now risk falling behind.
How according to you will FinTech trends shift during this new normal?
Adaptability is key. FinTechs are focusing now on the processing of PPP forgiveness and must prepare for PPP2 once it is passed.
We are also seeing a clear sign that the FinTech companies that have prioritized solid lending / risk management practices are going to be the ones that have staying power through economic downturns. Consolidation in the industry this summer already shows just how true this is proving to be. Strong technology plus strong risk management / credit standards will be the two components that FinTech companies must have to thrive and survive adverse conditions.
What are some of the near-future innovations you think will transform how financial services / FinTech as a service shapes up over the years?
Because of the pandemic, we are going to see a dramatic turn towards digital transformation at financial institutions. Many are already looking for how they can turn themselves into a kind of financially driven tech company. This moment is going to accelerate this trend even faster, and many banks will choose to scale back significantly on their branch footprint in exchange for a smoother online experience. As a result, banks are already starting to turn to nimble, tech-savvy counterparts in the FinTech industry (like Biz2Credit) to provide them with the learnings and platforms (such as Biz2X) that will enable this digital revolution to start from within the bank, instead of being imposed on them from outside by the larger tech companies. The rise in our platform business that we’ve seen over the past few months is a testament to the importance of this trend.
Looking further ahead, the major patterns that are emerging in financial services technology are coalescing around more and more applications of artificial intelligence within the banking world. For instance, at the core of Biz2X is our Bank Statement Analyzer system, an AI/ML system that runs natural language processing algorithms to identify transaction types, classify / categorize them and then perform fast analysis on them in order to speed up underwriting decisions without compromising on risk management principles.
The promise of this new technology is limitless. Complex decisions that used to be judgment calls for the most experienced underwriter at the bank can now be simplified. We’re even seeing many banks agree to run large amounts of their loan books through the AI decisioning engine instead of having manual underwriting. The benefits are clear – you get the same or better results with faster processing, and at the same time, you free up your highly skilled underwriting team to focus on the largest and most complex deals that still need careful human attention on them.
Before we wrap up, would you like to share specific finance management or business tips for Marketing and Sales or Finance teams struggling through this uncertain time due to the Covid-19 pandemic?
My outlook and advice is usually geared towards founders, business owners, and entrepreneurs. Business owners really operate as all three of these teams rolled into one person. So, my advice is primarily centered on how to survive the financial turmoil that is caused by the pandemic as a business owner.
The pandemic is unlike other economic downturn that we’ve experienced in recent memory. It could abruptly end, and in the meantime the decline in activity is driven asymmetrically by a combination of government and private actions. The uncertainty is very difficult to manage for a lot of business owners.
Here’s how I suggest dealing with this financially:
- If you don’t need money right now (if you’ve done ok so far, or you feel that you’re in a good spot with cash reserves) don’t get lulled into a false sense of security. If you don’t need money, it is often the right time to think about borrowing money to invest in your business with some cushion. Take advantage of the short-term opportunities if they present themselves, and don’t allow immediate cash flow shortfalls get in the way – use outside capital wherever you can.
- If you don’t have that cushion, it is time to be very cautious. Review your books again – what expenses are you making that are really only nice to haves. Entrepreneurs need to be constantly looking ahead, not behind – you may have liked a decision three months ago, but today’s environment is different; don’t allow yourself to become trapped by the nostalgia you feel for what would be a bad decision today. If you have trouble, ask yourself: would I make this purchase or financial decision for my business if I were given the choice to do so today? If the answer is no, then you need to do what you can to cut whatever it is.
- Most importantly, focus on your cash flow. It’s not enough to have invoices outstanding. In a credit crunch, creditors are not going to provide capital to cover your cash flow imbalances. You need to get your cash flow to positive territory and keep it there to ride out the pandemic.
Rohit is the CEO and Co-founder at Biz2Credit
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