Remember when there’d be a pitch for startup capital, with a straightforward yes or no in response? Well, things are a little different now, and we have people like Prashant Fuloria , Fundbox CEO, to thank for that.
The working capital marketplace
There are roughly 30 million small businesses in the USA, alone. About 20 million of those are B2B in nature. Every B2C business has a range of B2B suppliers and service providers, which form the majority of Fundbox’s clients.
“B2B businesses have exactly the same challenges as B2C businesses, with the additional financial challenge of invoicing customers and waiting to get paid .” — Prashant Fuloria
Right now there is a collective value of $900b in unpaid invoices in the USA. Prashant’s team addresses this, preventing small business disruptions caused by waiting for payment.
Before Fundbox, there weren’t many options available. Sure, you could hunt down payment or roll the dice on when to let unpaid receivables go. At some point it cost more to chase down a payment than a respective invoice was worth.
Banks vs Fundbox: the cost of managing unpaid receivables
Banks may spend thousands of dollars underwriting a small business, and it’s a huge factor in their decisions to provide financial support or not. On top of this, credit is calculated differently for small businesses than for other markets, like consumers.
Why does it cost so much for banks to underwrite small businesses?
Traditional banks are not equipped to deal with the kind of diversity presented in the current small business market. Banks depend on professionals like auditors and underwriters to analyze and contextualize each applicant’s case. There’s no easy way to scale a case-by-case process.
What’s the difference between banks and Fundbox?
Many leading financial institutions are proud of reaching 70% decision automation whereas Fundbox is operating at 99%, thanks to wise investments in AI. When applying for Fundbox solutions, small businesses are required to connect one of their existing systems to Fundbox.
The outcome: a business graph with nodes to represent the applicants and third parties they trade with. Each connection between nodes represents a transaction. With each passing day, the business graph provides more information about the small business economy, enabling more accurate decision-making for the AI platform.
“Our underwriting costs are almost zero because the vast majority of our data is provided by customers’ initial connection with our platform.” — Prashant Fuloria
The upside:
- It takes minutes to sign up
- Working capital is available within a fraction of the time that it takes banks to grant it
- You’re able to use the working capital flexibly, according to your company’s context
Why don’t banks use data from business bank accounts?
Bank accounts are a single source of information. Fundbox is flexible enough to pull data from any source of information. Bank accounts, accounting software, eCommerce platforms: there are a multitude of brands that can feed information into your Fundbox profile. By default, even if banks look at account feeds, it limits what information is available for analysis during the underwriting process.
A bank’s core focus and services are also not geared toward primarily serving small businesses. It would take significantly more investment of time and resources to develop the kind of ability that Fundbox has built up over seven years. There’s also the fact that Fundbox’s partnership landscape is growing, meaning that small businesses using other platforms will be able to access Fundbox services without leaving the UI of those platforms.
The Fundbox customer experience
Fundbox is assisting their customers in ways that other organizations can’t directly provide assistance. They won’t hold a single late payment (from years ago) against you or make you wait weeks or months for answers.
Fundbox is truly flexible, and every day that passes makes them wiser and better able to introduce products that genuinely serve their customers’ needs.
Small business post-pandemic recovery
It’s still too early to tell if we’re really coming up on the end of the pandemic or if this is a temporary economic upturn we’re now seeing. Prashant’s team kept tight controls on credit during the worst of the economic storm thus far. Delinquencies stayed within a manageable range and actually fell below pre-COVID figures in summer last year, staying there ever since.
“The robustness of your underwriting and the accuracy of your predictions get challenged when you hit a recession.” — Prashant Fuloria
Continually investing in the AI platform meant that predictions could be regularly revised. Prashant believes that we’re now in the second wave of FinTech, improving the experience from one end to the other, compared to the first wave of 10 years ago which saw companies focus on the front-end far more than the application itself.
Financial traditions are in a state of flux, creating opportunities for new financial products to enter the market. Prashant’s advice is to focus on your product-market fit and your lasting competitive advantage. Build a durable business.
In closing, Prashant shares his perspective that financial services are going to become more contextualized and personalized going forward, adapting for customers instead of being rigid and being promoted for a finite set of features.
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Until next time!
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