Intuit Enters the Game – A Review of QuickBooks Capital
Intuit owned QuickBooks has long dominated the small business space reserved for managing the books and keeping an enterprise’s accounting processes “tax return ready” at any given time of the year. Having become the go to accounting software for many companies has allowed QuickBooks to amass an enormous amount of data that can be used to build models to predict business trends such as cash flow needs and real-time analysis related to business growth. With the launch of QuickBooks Capital in November of 2017, Inuit seeks to leverage their data science capabilities to create a small business loan program designed to offer working capital loans of up to $35,000.
While there are many internet-based companies providing working capital loans, each with a formula roughly assessing health, credit and sales of a new business, QuickBooks Capital’s product uses the power of its data science capabilities and machine learning to offer a more accurate and more predictive credit model for acquiring capital at just the right point in the process. This deep data dive gives QuickBooks Capital a distinct advantage over other online lenders.
Servicing the Underserved
The act of acquiring a small business loan can present many hurdles. In the case of businesses seeking loans through traditional lenders the refusal rate can be quite steep. A recent Federal Reserve Study found that of small businesses less than five years old, fully 70% require funding to continue growth. However, of those seeking funding, 23% are unable to secure the funds necessary and lack of funding is often cited as one of the top reasons that 50% of all new businesses fail within the first five years.
QuickBooks Capital fills the need of the businesses mentioned above by serving the underserved. During its private beta, QuickBooks Capital noted that 60% of the borrowers in the beta would not have been able to acquire funding elsewhere in the form of a loan. They also discovered that 46% of QuickBooks Capital customers had never applied for a loan. The product has opened avenues for working capital that were previously closed, or at least extremely laden with obstacles.
QuickBooks Capital is licensed as Intuit Financing Inc. who acts as the lender of record in all credit offered.
- Terms: Loan terms from three to six months.
- Amounts: Loan amounts can range from $5000 to $35,000.
- Access: Access to funds within two days after approval.
- Fees: All costs are evident upfront and there are no hidden fees. There are no origination fees.
- Early Payment Penalties: There are no penalties for early payment.
- Access to QuickBooks Data: When you begin the application the form is pre-filled based on stored data from your QuickBooks account.
- Credit Impact: The initial credit pull is a soft pull of personal credit history. This does not affect a personal credit rating or score. Once the loan process progresses, a hard pull is done when the application is placed which could impact your business credit history.
- Building Future Credit: Payment performance is reported to Experience’s Small Business Credit Share and paying on time can help build your business credit history and improve your credit score.
- Uses: Loan can be used for hiring, inventory, payroll, investment of gods key to the business and other operational functions.
QuickBooks Capital uses criteria like other online lenders such as Kabbage and Ondeck. These criteria take both personal and business credit into account as well as prior year sales. All applications are individually reviewed. However, QuickBooks Capital does note that you can meet all the requirements but still not be approved. Requirements include:
- A minimum 580 or higher personal credit score. QuickBooks Capital loans are personally guaranteed like many other online lenders. If the business is not able to repay, the owner is required to cover the loan.
- Both personal and business credit history are reviewed.
- Past use of QuickBooks.
- Revenue of $45,000 or higher in the prior year.
- No bankruptcies in the previous two years.
- Business type must not be on the QuickBooks Capital prohibited list.
Comparing QuickBooks Capital to Other Online Lenders
QuickBooks Capital has stated that the program has resulted in a 60% increase in the share of new businesses with access to capital. They have identified this as their “underserved” segment of the small business loan market. If this number holds it will give QuickBooks Capital an advantage over many of its online competitors. A look at the QuickBooks Capital model compared to other online lenders gives us the following snapshot:
- Minimum Prior Year Revenue: QuickBooks Capital requires a minimum revenue of $45,000 or higher for the previous year. This is among the lower revenue requirements on par with lenders such as Kabbage ($50,000/yr.) and Fundbox ($60,000/yr.) with other lenders such as Lending Club ($74,000/yr.), Lendza ($144,000/yr.) and Torro ($180,000/yr.) requiring higher revenue to qualify.
- Loan Amounts: QuickBooks Capital’s loan amounts can be as high as $35,000 although the average small business using the program borrows around $25,000. The $35,000 maximum is low compared to other online small business lenders. PayPal, which has been offering small business loans for some time, lends up to $97,000 while FundBox and Kabbage will lend up to $100,000.
- Interest Rate: One stand out area by comparison is in QuickBooks Capital’s interest rate. Their loans list as between 6% and 18% based on business health and are much lower than other online lenders. Fundbox’s rates range from 15% to 59% and rates with Kabbage can range anywhere from 20% to 80%. While it is possible that the deep data analytics allow QuickBooks Capital to assess a business’ ability to repay the loan in real time and over the life of the enterprise by using their machine learning capabilities thus allowing them to better manage risk; the huge disparity in interest rates of many competitors compared to QuickBooks Capital may also be tied to the credit score requirements, or in the case of many of its competitors, the lack thereof.
- Credit Score Requirements: As mentioned above, one driver in the disparity of interest rates compared to QuickBooks Capital’s lower rates may be in the initial assessment. While not necessarily considered a “good” score, QuickBooks Capital’s minimum personal credit score of 580 makes it a loan obtainable by someone with at least a modicum of credit history. The higher interest rates of many online loan competitors may be a tradeoff for a low or no credit score high risk loan serviced by those lenders. QuickBooks Capital mitigates the risk by having a higher minimum personal credit score as well as a data driven and predictive picture of a business’ likelihood of repaying the loan.
Baked-In, Dynamic Performance
One of the strongest advantages of QuickBooks Capital is that it is a dynamic program leveraging its data science capabilities to provide real-time analysis to predict the amount of credit required and the likelihood that the loan can be repaid. As the QuickBooks accounting and tax software is already running the financials of the business, the QuickBooks Capital model can be accessed from a tab inside the software itself by accessing the tab marked “Capital”. Potential borrowers can even see the amount they are eligible for before applying via use of a loan calculator on the tab and the interest rate, payback cost and term is clearly and readily accessible during the process.
It is within the core business data that the benefits of QuickBooks Capital can make a big impact. Many competitors have similar formulas for requirements to determine loan eligibility, and many, such as Kabbage and Ondeck, can even link to other software programs, social media accounts and online stores to potentially boost the amount of available credit. However, the QuickBooks Capital model takes this increased visibility even further and works directly with the QuickBooks software already in use by the business. The result is a more comprehensive picture of business health, cash flow and performance.
Where QuickBooks Capital begins to pull away from the competition is with the integration of the credit model into its own, already popular accounting software, but also with its predictive and automated view of a business’ health at a given moment.
Using 26 billion data points QuickBooks Capital can:
- Give the business owner a full view of cash flow and profitability in real time. By using QuickBooks core accounting app, a small business can also connect to payroll, payments to vendors, bank accounts and credit cards as well as third party apps. The result is a real-time view of what credit is needed allowing the borrower to confidently apply for what is needed and not worry about over or under borrowing.
- Give credit for ongoing projects, open invoices and inventories. The ability to view these elements in real time allows a more accurate picture and can increase the amount of credit available to the borrower. While not specifically a factor program, by providing an element like those used by factors this does give businesses a key advantage, especially if capital has been tied up in large orders or complicated builds or where capital has been tied up with invoices pending.
- Allows trend analysis. The QuickBooks Capital model’s real-time focus allows a business to understand the growth dynamics at play and to understand seasonality and other year over year trends as they occur rather than looking backward after the fact.
- Leverage analytics of over 2.3 million customers to assess relative performance. QuickBooks Capital has a distinct advantage in many small businesses because they were “already there” in the form of software utilized by the enterprise as the QuickBooks Capital model rolled out. This allows them to analyze and make available relative performance compared to other similar businesses by industry and size. This tool can help a business set strategy for growth and help them benchmark where they are comparatively.
QuickBooks Capital’s entry into the small business loan category isn’t a game changer in the sense that it will disrupt the space and send online lending competitors scrambling to match cost and service. Many of those lenders already service a high risk, low or no credit score pool that is willing to pay higher rates for the convenience of obtaining working capital. The QuickBooks Capital credit model targets what it has identified as an “underserved” segment and by a dynamic, predictive and data driven model pulls new borrowers from small businesses into the lending sphere that may not otherwise have been able to secure a loan or are unwilling to do so for high interest terms. As a result, more businesses have access to the funds they need and can hold the line in those critical first five years where so many young and new businesses fail for lack of access to funding creating more stability and potentially changing the game for everyone.