How Secretary of State API Helped Idea Financial Lend Better

Idea Financial Innovative Product Offerings

Idea Financial sets itself apart with two unique product offerings:

1. True Revolving Line of Credit: Unlike the typical term loans offered by many alternative lenders, Idea Financial provides a revolving line of credit. Joe explains the advantage:

"We have a true revolving line of credit. So you borrow what you need, you pay for what you need, and you can pay back at any time with no prepayment penalty."

2. Specialty Finance for Plaintiff Law Firms: Perhaps the most intriguing product discussed was their financing solution for plaintiff lawyers. Joe provided insights into this unique offering:

"Imagine this, you're a plaintiff lawyer. You take on a case for contingency fee. You may end up spending 50,000 on that case for expenses like expert witnesses, travel, any other expenses that are associated with building your case. And then you go to trial and if you lose, you not get paid because your contingency fee, but you're also out that 50,000."

To address this issue, Idea Financial offers both financing and insurance:

"Now they can borrow that cash and use that as well to purchase insurance. So in case they do go to trial, which most cases do not, but the ones that do, you're basically at a coin flip, whether you'll win or lose."

These products demonstrate the potential for innovation in our industry. By identifying niche markets and developing tailored solutions, alternative lenders can create new revenue streams and differentiate themselves in a crowded market.

The Power of Cash Flow in Underwriting

One of the most striking revelations from our conversation with Joe was the emphasis on cash flow data in underwriting short-term loans. According to Joe, cash flow accounts for a significant portion of their risk assessment:

"The cashflow information offers another degree of understanding of the financial health of the entity that you're underwriting that has grown tremendously to where it's 60 percent of the ultimate kind of predictive validity of the risk models that we're, at least we're building."

Joe further elaborated on the importance of cash flow data for short-term products:

"At least for a product, you know, a shorter term product when you're talking, you know, anywhere from 12 to 36 months, the cashflow is very, very important. Credit will begin to become more important over longer periods of time, but in the short term, when you're trying to predict out a year, the cashflow data is extremely important."

For lenders in our industry, this underscores the importance of developing robust cash flow analysis capabilities. It's clear that relying solely on credit scores may no longer be sufficient to accurately assess risk in the short-term lending market.

‍Looking Ahead: The Future of Alternative Lending

While Joe didn't explicitly discuss future trends, his insights point to several areas that alternative lenders should be watching:

• Data-Driven Decision Making: The emphasis on cash flow data suggests that lenders who can effectively collect and analyze diverse data sources will have an edge in risk assessment.

• Niche Product Development: The success of Idea Financial's specialty law firm product demonstrates the potential in developing solutions for specific industry verticals.

• Automation and Efficiency: As exemplified by the Cobalt integration, continued investment in technology to automate processes will be crucial for scaling operations.

• Flexible Lending Products: The popularity of their revolving line of credit suggests that borrowers are looking for more flexible financing options than traditional term loans.

As we move forward, it's clear that success in the alternative lending space will require a combination of innovative product development, sophisticated data analysis, and efficient operations. Lenders who can adapt to these trends and continue to meet the evolving needs of borrowers will be well-positioned to thrive in this dynamic industry.