While small businesses often struggle to attract the attention of financiers, a new online venture with the sympathetic name Happy Mango is opening new financial doors for them via an internet platform.
The struggles of small businesses are well known. They create big jobs and created almost twice as many jobs as large corporations between 2010 and 2019 — 10.5 million versus 5.6 million, according to the Federal Consumer Financial Protection Bureau. But small businesses are usually the first to collapse during an economic downturn. A third of small businesses shut down during the height of the Covid-19 pandemic, the CFPB reports.
COVID-19 kind of got us going. It was a great time for people to see that many things can be done online.
Kate Hao, Founder and CEO
Happy Mango Inc.
While the pandemic may be a temporary phenomenon, a chronic ailment plaguing small businesses is a lack of credit. According to a 2017 National Small Business Association survey cited by the CFPB, about 27% of small businesses say they are not getting the financing they need.
Fix for a “faulty” credit rating system
Reasons for this credit crunch include a flawed credit rating system and cumbersome underwriting and service processes that push lending below certain thresholds — which are often marginal or unprofitable for many large banks, says Kate Hao, founder and CEO of Happy Mango Inc. She adds add that these lending thresholds, while too low for many banks, are often still much higher than what a small business might need.
These are the issues New York City-based company Happy Mango is attacking through its online underwriting and lending platform for community banks, credit unions, and nonprofit financial institutions for community development. In addition to business loans, the platform processes and manages consumer auto, mortgage, and personal loans. The three-tier platform also serves financial advisors as well as consumers directly by providing data and analytics to monitor financial health and improve credit scores.
Additionally, Hao wanted their platform to streamline what she believes are often inefficient loan application, documentation, and maintenance processes. The platform supports these functions as well as payment processing.
A glimpse of better borrower data
Chinese-born Hao, who received her bachelor’s degree from Albion College in Michigan and her MBA from Harvard Business School, is well versed in the world of finance. She spent around 12 years at Morgan Stanley, rising to executive director of the giant investment bank’s corporate treasury unit before starting her own business in 2014.
During his time at Morgan Stanley, Hao concluded that lenders didn’t have all the tools they needed to assess the risk of lending to underserved consumers and small businesses. The scores generated by the dominant credit bureaus — Equifax, Experian, and TransUnion — are based primarily on loan repayment data and are therefore “retrospective,” Hao says. Helpful, yes, but not the whole picture.
Hao says developing online technology for improved risk assessment was Happy Mango’s original mission when it landed its first customer in 2016. Her guess was that data on a small business owner’s checking and savings accounts and cash flows would paint a more complete picture of risk than ratings alone. But the work can be complicated because “at the micro-enterprise level, the owner’s personal and business finances are very intertwined,” she says.
Therefore, Happy Mango’s differentiator in credit scores “emphasises the recurring expense items, the recurring income items,” says Hao. “We look at cash flows; the others look at the past payment history.”
Development of a new type of credit platform
Another differentiator, she adds, is the Happy Mango platform’s ability to quickly adjust payment due dates without forcing the business owner to seek mercy from the lender when expenses temporarily exceed income. This is made possible by the insights that Happy Mango gains from its account and cash flow data.
“Flexibility in payments is extremely important,” says Hao. “That kind of payment flexibility is almost as important as a strong risk score.” The platform’s lending capabilities are integrated with the financial advice aspects for consumers, small businesses, and financial advisors, she adds.
Happy Mango, which has just four employees, largely built the platform from scratch, Hao says. But some prominent tech firms are providing crucial support behind the scenes. One of these is Plaid Inc., a big data aggregator for fintechs that provides access to consumer bank account information. In addition, Dwolla Inc. manages automated clearing house payments between borrowers and lenders.
Today, 10 community financial institutions in the New York City area use Happy Mango’s lending platform. The business lending component went live 18 months ago, and since then almost 400 small businesses have received loans through it. Although Covid-19 destroyed many small businesses, it had the ironic effect of helping Happy Mango grow by allowing community lenders to distribute government-backed Paycheck Protection Program (PPP) loans through its platform.
Learn what can be done online
“That was the beginning for us,” says Hao. “It’s been a great time for people to see that a lot of things can be done online.”
While large banks often prefer to issue business loans of $50,000 or more, the median amount of a loan processed through Happy Mango is just over $10,000, with actual amounts ranging from $3,000 to $400,000, Hao says.
Happy Mango’s pricing for financial institutions is based on subscriptions, with three plans ranging from $350 per month and a one-time setup fee of $2,500 to $950 monthly and a one-time fee of $5,000. Tailored pricing for high volume users is also available.
Hao is shy about what big things she has in mind for the future, despite noting that the platform is updated every two weeks. Regardless, their focus will remain the same.
“We’ve made a significant impact on the community that needs assets through credit,” she says. “I think we’ve improved efficiency significantly.”
Jim Daly is a Mount Prospect, Illinois-based freelance journalist covering business and technology.
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