Pants haven't innovated small business finance in years and there's no incentive for them to do that.

Short term lending has been around for maybe centuries, right?

What is new is identifying a customer segment which you can really understand by just asking customers to connect their digital presence

because if you connect with their Shopify APIs or Amazon APIs or any of the e-commerce stores APIs,

you can actually get a very good understanding of what is selling, how much is selling, what is the seasonality,

and then you connect your marketing ads, you understand, like, return on ads friends.

The amount of data e-commerce entrepreneur can give you, e-commerce founder can give you,

is very different compared to what it just saw and can give you.

Dr. Francis Lau and I are busy building a three-pronged credit training program.

Don't worry, I'll tell you all about it when it's ready, but for now, what's relevant is that it falls to me to introduce the concept of affordability checking.

And for more than a decade I've taught this in the same way, that once you've priced the loan for risk,

you calculate an applicant's repeatable monthly income and allow a certain percentage of that to be assigned as the maximum loan repayment.

And then with the help of my beloved annuity curves, we can turn that into an upfront payout.

If they're looking for that amount or less, we're all happy. If they're looking for more, we have to downsell them.

It's simple and works very well for your typical salary owner.

1000 pounds a month for 60 consecutive months will settle a 50,000 pound debt priced at about 8% APR.

Is that affordable for an applicant that has, on average, 1500 pounds of available income?

Well, on one level, yes. In the long run, they will have enough money to cover their payments.

But there's usually another level we have to go through to be prudent, because average is of funny things.

If an applicant has 1550 pounds available one month and 1450 pounds available another, that's 1550 pounds available on average.

Nice and steady. If an applicant has 2500 pounds available one month and 500 pounds available another, that's also 1500 pounds available on average.

Yeah. And while the form applicant will pass out checks easily, the latter one won't, because to be prudent, we'll ignore the higher earning months and cater to the worst case scenarios.

...