Congress Looks to Fintech to Solve Small Business Capital Access Concerns
On Thursday, October 26th, Mirador CEO, Trevor Dryer, testified before the House Small Business Subcommittee on Economic Growth, Tax, and Capital Access in a hearing titled, “Financing through Fintech: Online Lending’s Role in Improving Small Business Capital Access.” During his testimony, Dryer discussed the role regulated financial institutions play in online lending to small businesses by partnering with Mirador. Highlighting concerns about small businesses sacrificing loan terms and cost of capital in exchange for speed in obtaining loan funds, Trevor’s testimony explained how other lending alternatives do exist for small businesses while outlining some of the reasons regulated entities are hampered on the time from application to the funding of the loan. Mirador provides the platform for regulated institutions to efficiently process applications and swiftly compile a credit file for underwriting. The efficiencies Mirador injects into the lending process assist the lenders in making small dollar loans more profitably and allows borrowers the option to transfer their application to another institution should they not qualify through the original institution. Through Mirador’s network, small businesses seamlessly move through the process of finding capital at a reasonable rate with favorable terms.
Given Mirador’s involvement in facilitating small business lending, Trevor offered a number of observations and policy suggestions to improve the overall experience for small business borrowers and help regulated entities compete with the numerous online lenders on the speed in which a small dollar loan is funded. Specifically, Dryer recommended automating the request for tax transcripts through the IRS. This is currently handled by filling out the IRS 4506T form and faxing the completed document to the IRS. A bill (H.R. 3860 & S. 1958) sponsored by Congressman McHenry (R-NC) and Blumenauer (D-OR) in the House and Senators Cory Booker (D-NJ) and Mike Crapo (R-ID) in the Senate would require the IRS to handle these requests and verifications through an API. Second, Trevor recommended a mandate that a small business credit report, pulled for a loan application, travel with the application. It seems logical that if someone applies for credit at one institution and is denied and the same small business applies for the same loan from another institution, a new credit report should not be pulled every time.
Trevor also recommended updating tests through the Community Reinvestment Act (CRA) allowing regulated entities to obtain CRA credit for referring declined loans to partner CDFIs. Working in conjunction with the NYBDC, Mirador found a need for referral to CDFIs. Currently, banks only get credit for directly funding lending or providing technical assistance to the CDFIs. By opening the credit up to referrals, banks can partner with a CDFI opening a new pipeline for mission-based, non-profit lenders.
Finally, Dryer highlighted some technology issues facing the Small Business Administration and encouraged the use of readily available, private sector solutions to improve their programs like SBAOne and SBA Lender Match.