North End Financial helps banks make loans to small businesses, by supporting approved borrowers with cash-secured guarantees. We were founded by community bankers, so we understand the challenges faced by small business lenders.
Our mission is to enable the first step in building lasting lending relationships between banks and their new small business customers. Not only is the success of small business critical to the health of our economy, but it is also critical to the health
of community banks, and we believe our service will strengthen both of these groups.
Underwriting small business loans is expensive and time consuming. Banks request a full financial package from prospects, which requires time to accumulate, spread and analyze. Then a banker must draft a credit memo to obtain approval. This process takes the same time whether the loan amount is large or small, so many banks don’t bother pursuing or processing small loan requests.
In order to mitigate the cost issue, many larger banks developed scorecard models to automate the process of underwriting
by collecting a small sample of data and making an automated decision. The problem with these models is they rely too heavily on the business owner’s FICO score. While this seems okay, in reality many business owners have bootstrapped
their companies with their personal credit, and while the business may generate strong cash flow- the owner's FICO does
not qualify. Although the data on the credit report is useful, the score itself is not a predictor of credit performance.
At North End we are attempting to provide credit to those Borrowers whose loan requests are too small to attract attention from bankers, or whose personal credit disqualifies them from bank scorecard credit programs. Our underwriting process is driven by an effort to assess the global cash flow of the small business borrower. These businesses are generating extensive data that is available for analysis- from credit card and POS data to bank statements to social media engagement and demographics, and all this data is useful credit data. We are able to analyze this data and generate a predictive model as to
the borrower’s ability to repay.
But underwriting is not enough. We believe in our predictive model and we do offer direct loans to businesses, but our ultimate objective is to help businesses reduce the cost of debt capital, so we believe it is important to build bank to customer relationships. When North End approves a borrower for a loan with suggested terms and structure we will guarantee- with cash collateral- that loan on behalf of the Borrower. We are putting our money where our underwriting is. Our hope is with this guaranteed secondary source of repayment- that banks will begin to build a credit relationship with these new small business customers, and eventually lend to them directly without the loan guarantees.
Our aim is to offer a "training wheels" credit product to prove to banks that a larger portion of the small business world is credit worthy within bank-acceptable default parameters, enabling the flow of credit to small businesses, and the extension of bank profitability in new business lines through the acquisition of previously non-bankable borrowers.
Please contact us to learn more about the program, and see if we can help your bank make more loans.