Small businesses have historically been underserved by traditional financial institutions. It's a common refrain in fintech, and there's no shortage of VC-backed startups looking to tap into the broad segment of small business.
And that's because small-business lending is complicated. The types of credit available to a business owner vary depending on the size of their company, their location, even their personal credit scores.
Nav, a platform that connects small businesses to various credit products, looks to simplify the process for small-business owners in need of funding.
On Tuesday, the startup revamped its platform with real-time business data and customized financial profiles for small businesses in an effort to streamline their access to credit.
"On the small-business borrowing and lending side, there are dozens of different types of products, different types of models," Greg Ott, CEO of NAV, told Business Insider.
The changes come as those serving the SMB community have struggled, as the segment was amongst the hardest hit by restrictions put into place due to the coronavirus.
Nav isn't a lender, rather it provides a gateway for small businesses to qualify for and ultimately secure various types of credit, from term loans to corporate cards to revolving credit. Nav works with lenders across the board, including major banks like Amex and Citi, as well as fintech lenders like Brex, BlueVine and Fundbox.
Prior to the pandemic, Nav worked with more than 60 lenders and over 100 credit-card providers.
And while the majority of lenders paused operations during the pandemic, they're starting to return to the platform. Nav currently has around 35 lenders and 40 credit cards available on its platform, Ott said.
"The demand side has definitely not worn off," Ott said. "The supply side got completely wiped out. But it has been coming back."
Now Nav is adding new machine-learning capabilities to enhance its ability to get the right credit products in front of small-business owners. Nav has also grown its workforce so small-business owners who need more guidance can get matched with a Funding Manager.
Founded in 2012, Nav has raised $99 million to date from investors including Goldman Sachs, Kleiner Perkins, and Point72 Ventures.
"We can aggregate the different types of suppliers for small-business borrowers, and then when the borrower comes, we use their real business data to connect them to the right product based on their needs," Ott said.
Nav addresses the mismatch in supply and demand
Nav operates a two-sided platform, so it has insight into both the creditworthiness of small businesses and the risk tolerance of different lenders. Its platform has live data connections into the major business credit bureaus, consumer credit bureaus, and businesses' bank accounts.
It uses this data to give small business owners a personalized suite of available credit products, be it through a traditional bank or elsewhere.
As a marketplace of sorts, Nav's platform is looking to address the mismatch between supply and demand.
"There's a way to price the risk in every market," Ott said.
Nav stresses transparency for the small business owners, ensuring that they understand the types of loans they're looking at, and the cost of capital. And that could mean that credit comes not from traditional banks, but from players willing to lend to riskier businesses, albeit at higher rates.
"Sometimes small businesses are okay paying more for access to capital," Ott said. "I think innovation is going to come around how people are willing to price risk, and if they can do that without obfuscating the rules. I think that's what it's going to take to start to solve for this big gap in supply."
And while non-bank fintech lenders are solving for a portion of the supply and demand mismatch, it's not enough to close the gap completely. It's larger institutional investors that could find ways to price the risk, Ott said.
"Ultimately I think it's going to be solved more by enterprising institutional investors who say, 'I'm willing to price that risk,'" Ott said.
The PPP process showed that small businesses need better access to credit
Small businesses have been rocked by the coronavirus pandemic. And while demand for credit among small-business owners has gone up, supply has fallen as lenders tightened their credit models, less willing to lend to struggling businesses.
The SBA's PPP roll out, an effort to help small businesses stay afloat despite their businesses being closed, showed that traditional lenders like big banks were unable to effectively serve the smallest of small businesses.
Unable to access PPP funding through their traditional bank channels, many small businesses owners turned to fintech lenders like BlueVine and Kabbage to process their applications.
And while PPP got a lot of attention, demand for credit is still high in the small business segment, Ott said.