Working Capital (Debt) Financing For Entrepreneurs: Mitch Jacobs, Founder And CEO, On Deck Capital (Part 6)

By guest authors Irina Patterson and Candice Arnold

Irina: What do you think business owners should do, in general, to be more successful with finding the capital that they need?

Mitch: I think the absolute, most pivotal thing that business owners need to do is to make it easier for lenders to understand the performance profile of their businesses.

The biggest problem we face is it’s just too much work for a financial institution to make capital available to a very small business.

The problem that the United States faces right now in delivering capital to Main Street is not a credit or a capital availability problem, it’s a technology and infrastructure problem.

That’s the most important thing that business owners need to realize; it’s the most important thing the White House needs to realize; and it’s the most important thing that federal, state, and local agencies need to realize.

The good news is if we all put our energy into solving that problem, then we will have an entirely new perspective on what businesses should get access to capital. And the very exciting news is that those businesses are the sources of a lot of jobs. If we can take an entirely new perspective on businesses that’s more aligned with the actual performance profiles of the businesses, then the businesses that are the employers today, they are the employers of the jobs we have, and they are creating the next jobs we need, those are the ones that get access to capital.

Irina: What steps need to be taken to accomplish that?

Mitch: It sounds self-serving, but the steps we’ve taken are the steps that need to be taken. It’s to design a financial system that enables the collection of real financial information on real businesses at the speed and scale that a $13 trillion economy requires. And once you have that, then also build into it the tools that both borrowers and lenders need to be able to facilitate effective repayment, and effective servicing of transactions, and effective monitoring of transactions. Then you have a kind of reborn infrastructure for responsible lending to small asset classes.

Irina: What should the banks do?

Mitch: I think that this is a case where what the banks need to do is to be open- minded to the power of these new solutions and to evaluate programs such as On Deck and to determine whether they can put balance sheet capital behind them. I think that banks are not the inventors of financial systems; they are the retailers of them. I think they should become more involved in evaluating all of these new tools and products that companies like On Deck are building. They should adopt a little more of the open application architecture mindset and recognize that they are a very, very powerful platform.

Nothing in our economy can work without banks working. We’ve certainly seen recent proof of that. But to look at programs like ours as a way for banks to much more rapidly extend what it does by taking advantage of the work of entrepreneurs and entrepreneurship to be able to successfully do new and different things off of that very powerful platform that they have.

Irina: What do you think about services such as Prosper and services similar to it?

Mitch: I think that there are several noteworthy new technology enabled lending platforms that are opening up new markets the way that On Deck is for small businesses. I think that Prosper, Lending Club, Receivables Exchange, and Progress Financial represent different approaches to different markets.

When I made the comment that one thing banks can do is take a proactive and open-minded stance when thinking about new ways to expand their activity in the economy, looking at the On Decks and the Lending Clubs and the Progresses and the Receivables Exchanges and the Prospers is the way to do that.

Irina: Great insights, Mitch. Thank you very much.

This segment is part 6 in the series : Working Capital (Debt) Financing For Entrepreneurs: Mitch Jacobs, Founder And CEO, On Deck Capital
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