4 ms·

Business Microloans for U.S. Subprime Borrowers [pdf]

30 points by iamchmod 12y ago

throwaway4545 12y ago
I work for a technology company in this industry, and its really cool to see this on the front page. There are some really interesting technical problems in figuring out the credit algorithms for loaning to small business owners. Banks don't have the incentive to care about $10,000 loans, but it makes a huge difference (as seen in the paper above and our own data) to these businesses. Its definitely an example of an industry where technology is "disrupting" hard. Loans which used to take 2-12 weeks to be approved can be approved by a computer in literally minutes, and the number of businesses that can be approved efficiently is drastically higher.
mschuster91 12y ago
Credit rating by computers already is too prevalent. Who is a machine to decide if one is credit-worthy? In most banks, you can't pitch your idea like e.g. a startup founder can with angel investors because bank regulations say "computer-only decisions here". Have a bad mark (e.g. you were in jail for pot in your youth) and don't get a credit for the rest of your life. This is the brave new world of full automation. edit: also, this introduces a total lack of accountability and basic rights: "when the regulations say that I am only allowed to accept new tenants when they pass the computer check, I cannot give you a home. Even if I like you personally, you have 100K+ income, and that pot jail sentence is 20+ years past - but the computer says no because you are black and a drug offender". Just think about the scenario. It is totally possible today if you feed the computer with the wrong data.
- deleted 12y ago
  [deleted]
- joncooper 12y ago
  This is what regulation is for.
  - mschuster91 12y ago
    Regulation? Are you serious? Just look at the European financial markets. The ECB pumps billions of euros into the banks in order to incentivize credit flow to businesses. What do the banks do? Computers tell them that providing credit to businesses and consumers is too risky, banks listen to computers and banks invest in stuff with more risk than playing poker in a casino. Regulation does not work in finance - because banks continue to evade regulation as good as they can.
    - toomuchtodo 12y ago
      This is why the ECB just went negative on interest rates; to make it more costly to hold onto the funds than it is to lend it out.
      - mschuster91 12y ago
        So what, the cash will still flow where the return chances are higher. And consumer/business credit is far, far below the return rates of speculation and derivatives.
dalek2point3 12y ago
any ideas on what company it is that they're working with?
- cm2012 12y ago
  It says Accion
  - yunfangjuan 12y ago
    https://www.fundastic.com/business-loans/accion https://www.fundastic.com/business-loans/accion They are pushing their online loan application hard. Their rate is a lot cheaper than Kabbage, OnDeck and Merchant Cash Advances providers.
    - cm2012 12y ago
      I see your team made Fundtastic. It's a great site.
JackFr 12y ago
This paper seems to be all over the place, including subprime mortgage lending, commercial lending and pay day loans, really to no seeming point. Then they conflate small businesses with startups. All to reach the conclusion that firms who obtain credit are more likely to succeed. There probably is a very good kernel of analysis in there, but this paper really needs to be tightened up.

30 points by iamchmod 12y ago

I work for a technology company in this industry, and its really cool to see this on the front page. There are some really interesting technical problems in figuring out the credit algorithms for loaning to small business owners. Banks don't have the incentive to care about $10,000 loans, but it makes a huge difference (as seen in the paper above and our own data) to these businesses. Its definitely an example of an industry where technology is "disrupting" hard. Loans which used to take 2-12 weeks to be approved can be approved by a computer in literally minutes, and the number of businesses that can be approved efficiently is drastically higher.

mschuster91 12y ago

Credit rating by computers already is too prevalent. Who is a machine to decide if one is credit-worthy? In most banks, you can't pitch your idea like e.g. a startup founder can with angel investors because bank regulations say "computer-only decisions here". Have a bad mark (e.g. you were in jail for pot in your youth) and don't get a credit for the rest of your life. This is the brave new world of full automation. edit: also, this introduces a total lack of accountability and basic rights: "when the regulations say that I am only allowed to accept new tenants when they pass the computer check, I cannot give you a home. Even if I like you personally, you have 100K+ income, and that pot jail sentence is 20+ years past - but the computer says no because you are black and a drug offender". Just think about the scenario. It is totally possible today if you feed the computer with the wrong data.

deleted 12y ago
[deleted]
joncooper 12y ago
This is what regulation is for.
- mschuster91 12y ago
  Regulation? Are you serious? Just look at the European financial markets. The ECB pumps billions of euros into the banks in order to incentivize credit flow to businesses. What do the banks do? Computers tell them that providing credit to businesses and consumers is too risky, banks listen to computers and banks invest in stuff with more risk than playing poker in a casino. Regulation does not work in finance - because banks continue to evade regulation as good as they can.
  - toomuchtodo 12y ago
    This is why the ECB just went negative on interest rates; to make it more costly to hold onto the funds than it is to lend it out.
    - mschuster91 12y ago
      So what, the cash will still flow where the return chances are higher. And consumer/business credit is far, far below the return rates of speculation and derivatives.

dalek2point3 12y ago

any ideas on what company it is that they're working with?

cm2012 12y ago
It says Accion
- yunfangjuan 12y ago
  https://www.fundastic.com/business-loans/accion https://www.fundastic.com/business-loans/accion They are pushing their online loan application hard. Their rate is a lot cheaper than Kabbage, OnDeck and Merchant Cash Advances providers.
  - cm2012 12y ago
    I see your team made Fundtastic. It's a great site.

JackFr 12y ago

This paper seems to be all over the place, including subprime mortgage lending, commercial lending and pay day loans, really to no seeming point. Then they conflate small businesses with startups. All to reach the conclusion that firms who obtain credit are more likely to succeed. There probably is a very good kernel of analysis in there, but this paper really needs to be tightened up.