How Big Data Is Changing Small Business Loan Options - Page 2

By Pam Baker
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More Alternative Small Business Funding Programs


Amazon launched a similar program last year called Amazon Capital Services. The Wall Street Journal reports that this funding source is primarily by invitation:   

"Merchants who spoke to The Wall Street Journal said they were offered loans ranging from $1,000 to $38,000 apiece, with interest rates from less than 1 percent (for one of them) to 13.9 percent (for most who were interviewed). Small-business credit-card interest rates typically range from 13 percent to 19 percent."

An Amazon spokesperson told The Wall Street Journal that the company is "looking to help sellers obtain cash more quickly than they might otherwise from a bank or other traditional lender. Our goal is to solve a difficult problem for sellers."


Another player in the alternative funding game is CardConnect, a payment processing service for some 50,000 U.S. businesses. The company processes credit, debit and pre-paid card transactions and offers ERP integrations and PCI compliance solutions as well. 

CardConnect recently partnered with OnDeck, a lender that uses data aggregation and electronic payment technology to evaluate the financial health of small and medium sized businesses. The partnership provides immediate capital to small businesses that are underserved by traditional banks.

"Small and medium-sized businesses are continually inhibited from taking advantage of time-sensitive opportunities that require additional capital, whether it be due to the slow-moving approval process by a bank or external economic factors like a government shutdown," said Pat Shanahan, COO at CardConnect. "We wanted to make sure our clients always have an avenue to secure funds quickly and fairly."

Retailer Loyalty Credit Cards

If a small business or its owner has ample money in a traditional bank, but it also has slow or thin credit, it can still be hard to get a bank-issued credit card. A way around this obstacle is to get a retailer-branded credit card instead. It's far easier to qualify for, and it often comes with much bigger spending limits.

A retailer-branded credit card, also known as a partner card, doubles as a store credit card AND as a major credit card—i.e. Visa, MasterCard, American Express—that you can use elsewhere other than at the store that issued the card.

Retailer cards are almost always backed by a third party such as CITI or Bank of America," explains Bob Lawrence, CEO of BrandSource, a nationwide buyer's group for independent merchants. "Major retailers offer them to reduce the costs charged by American Express, MasterCard and Visa, but smaller retailers cannot generate enough volume to pull it off."

Smaller businesses can, however, get these cards more easily and use them the same way they would use a bank-issued card to cover or float expenses.

"Loyalty cards are only beneficial if the loyalty program is a good fit for the small business owner's spending habits," says Ben Katz, CEO of Card.com, a personalized prepaid debit card company. "If you travel a lot, go with your favorite hotel or airline. If you buy supplies from Home Depot, then the benefits from that card will be more valuable."

It's All About Your Data

So why, you might ask, do banks make it so hard for small businesses to qualify for a bank-issued credit card? After all, it's the banks that are backing the much easier to get store branded credit cards.

It is because of your data. The bank backing the card, the credit card company, and the retailer get their hands on more of your data by giving you a store-branded card than they do through traditional bank-issued cards.

"Data is a major piece of the puzzle," says Lawrence. "It gives them point-of-sale data on what's selling and where. It also gives them specific data on a particular customer. All of this allows them to do very specific marketing. Now they can be more effective and at a lower cost while increasing sales."

Plus the retailer-branded credit cards get wider distribution than their bank issued counterparts, and customer loyalty is much higher too.

"Moreover, store brands are actually liked by their customers, whereas banks have a spotty track record on customer happiness," says Katz.

And that's exactly why the traditional banking model will eventually be left behind in this new Big Data-driven world. Traditional banks are too stuck in yesterday's thinking, too married to an outdated credit reporting and scoring process, too slow to meet market needs, too hostile towards small business and entrepreneurs, too much of everything wrong.

But while banks struggle to figure out what to do next, you can carry on with your business despite them by taking advantage of all the new funding sources and credit cards bursting on the scene.

Just be careful. You still need to carefully weigh terms, interest rates and other factors to ensure you get a good deal.

Pam Baker has written for numerous leading publications including, Institutional Investor magazine, CIO.com, NetworkWorld, ComputerWorld, IT World, Linux World, Internet News, E-Commerce Times, LinuxInsider, CIO Today Magazine, NPTech News (nonprofits), MedTech Journal, I Six Sigma magazine, Computer Sweden, the NY Times, and Knight-Ridder/McClatchy newspapers.

Do you have a comment or question about this article or other small business topics in general? Speak out in the SmallBusinessComputing.com Forums. Join the discussion today!

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This article was originally published on November 04, 2013
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