Thought Leaders in Financial Technology: Brock Blake, CEO of Lendio (Part 3)

Sramana Mitra: Talk to us about those different categories of financing that apply to our audience. What kind of metrics are people looking for?

Brock Blake: I’m going to talk about this generally for a second and then I’ll get down a little bit more specifically to that industry. Generally, lenders are going to underwrite based off of three things. They’re going to, one, look at the cash flow. There are a bunch of ways to determine whether you have cash flow. Cash flow might involve looking inside your bank account, the amount of credit cards that you’re swiping, any recurring revenue, or accounts receivable. So first is cash flow.

The second category is going to be collateral. Collateral can be in the form of cash or some sort of an asset like equipment or purchase order. A friend of mine in a technology company reached out to me just this week said, “I’ve got a $1,000,000 purchase order that I should be signing in the next week or two. What can I do with that?” That’s an asset that you can leverage. It’s got collateral to it. The reason why they’re talking about collateral is because if the loan goes bad, they have to somehow be able to recoup the dollars that are lent. You don’t have the cash flow to support it, but you might have some sort of an asset that you’re going to leverage.

The third C is credit. Credit might be in the form of business credit or personal credit. What they’re checking is, what’s the track record of repayment for this individual, person, or business? Are they consistently late? Are they consistently defaulting or do they have a pristine track record? Lenders are going to underwrite based off of those three things. They’re doing a risk assessment.

If you check the box on all three, you’re probably going to get any type of loan you want at really good rates. If you only check two of the three, you’re going to still be able to get a loan, but your risk profile goes up and the rate is likely going to go up because you now represent higher risk. If you only check one of the three boxes, you still are going to be able to get a loan today.

Five or ten years ago, if you only check one of those boxes, you probably couldn’t have gotten a loan. But now there’s a lot more lenders out there and a lot more loan options. So if you only checked one of those boxes, you’re still going to be able to get a loan but you represent a higher risk and your rate is probably going to increase.

Those three common principles go across every industry and vertical that you can think of including tech and software. In tech and software, you might dive deeper. There’re going to be certain assets or collateral that tech and software companies have. They may not have equipment or real estate but they would likely have purchase orders.

This segment is part 3 in the series : Thought Leaders in Financial Technology: Brock Blake, CEO of Lendio
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