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October 15, 2023


Cash Flow Amidst the Credit Crunch is part of Ned’s Infrastructure Week series where we cover all things lending technology and transformation.
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Cash Flow Amidst the Credit Crunch

Lenders delivering on cash flow strategies to drive resiliency


It’s a Tale of Two Cities in small business lending.

Interest rates are high, and they’ll remain that way. Consumer confidence is in decline. If it wasn’t hard enough, small business owners seeking capital face steeper challenges. And yet, jobs growth outperforms and provides a hopeful economic outlook.

Amidst a credit crunch, small businesses can defy odds and grow. And so in context, today’s resilient lender is one that’s determined enough to partner with a small business to generate value, and then creative enough to find ways to grow with them.

Higher cost of capital pushes lenders toward higher-margin growth, or oppositely, toward maintenance. Lenders that deploy faster, cost-effective financial products, or which adopt evolved underwriting practices will have a resilient edge.

And while investing in a cash flow strategy is one way a lender can transform, it does indicate how lenders are realigning with today’s economy and reflecting business owners’ needs within their organization.

To that end, there are key similarities among lenders adopting cash flow-based strategies.

These shared goals and traits paint a picture of a resilient lender emerging. As they work to be future-proof, they are building a resiliency playbook drawn from iteration and active learning.


At a strategic level these lending organizations want to release pent-up potential. This potential can be a real or perceived opportunity cost; idle dollars, or an inability to confidently raise capital due to product-market fit issues.

And against the backdrop of capacity challenges, these lenders simultaneously seek revenue or loan book growth and new ways to meet customers’ needs. Taken together, they intend to create long-term economies of scale that would outweigh any near-term investment in cash flow underwriting capabilities.


It’s a wonder how the small business loan remained unchanged for so long. Principal and interest, fixed repayment, end date – the same today as it was when it was created in ancient Mesopotamia.

Today’s lending challenges call for modern financial products, and resilient small business lenders organize their approach the same way. They know that in order to derive value from cash flow underwriting, they will need to first refine their financial product offering.

New financial products represent opportunity, but a new product must be shaped by customers.

In weighing the price and promise of cash flow underwriting, and to get feedback from their borrowers, these lenders typically operate in the same order:
1. They design wholly new revenue-based financial products based on growth objectives
2. Then create specific cash flow-based underwriting criteria to power that product
3. And then, to reduce costs and learn quickly, they launch that new financial product and cash flow underwriting workflow insulated and away (at first) from a core lending operation

It’s a nimble approach. If borrowers indicate the financial product or qualification criteria need to change then the lender can do so without serious costs.


The lenders transforming in this direction have common starting points.

To a large extent, they have similar goals, operations, and customers. After experiencing the same challenges, the lenders each arrived at their own inflection point and decided to make changes. We observe that these lenders share the following strategic goals and challenges:

Scale Imperative: These lenders aspire to grow – they want to grow their loan book value, qualify a higher volume of borrowers, or both. Qualifying borrowers presents an ongoing obstacle. Growth goals are moot as lenders struggle to approve (or even consider) business owners with consistent cash flow, but without credit or collateral.

The bottleneck creates ripple effects:
• Qualification remains time-intensive and costly
• Loan books might be less diversified, leading to default vulnerability
• Systems become entrenched, making it hard to introduce change

Savings Imperative: The need for speed underpins the lender’s move toward cash flow underwriting, and nearly all decisions which follow – it shapes the financial product’s design, new qualification criteria, and their operation’s workflows to deploy capital.

Lenders driven by speed, and which leverage cash flow strategies, typically aspire to:

Reduce time to deployment: Actively want to drive down average application approval time to days, or a week

Lower variable costs: Optimize borrower touchpoints, streamline paperwork or other complexities to reduce the steps to approval and their related unit costs

Handle more volume: Streamline team structures and combine remits to allow the organization to move quicker with less hand-offs

Service Imperative: The resilient lender wants to serve more and new customers. In all cases, these lenders are adopting cash flow strategies to address borrowers where prior financial products created friction or where underwriting, closing, and servicing workflows weren’t aligned.

Typically we observe lenders adopting cash flow strategies to finance businesses which:

Have Unique Revenue Profiles: Less mature revenue track record, smaller annual revenues, or heavy seasonal revenues, typically too costly to underwrite

Operate in Hard-to-serve Sectors: Inventory-heavy categories, those with delayed revenue cycles, service-related sectors without assets to collateralize

Are Located in New Coverage Areas: Nearby geographies where there is low or no penetration, but where the lender wants to extend in a cost-effective way


Lenders adopting cash flow strategies typically share operating norms. Together, their workflows, culture, and talent create environments that allow change.

We observe lenders successfully engaging cash flow strategies share the following similarities:

Culture: They have a working culture defined by open-mindedness, a willingness to innovate or fail, and a sense of collegiality. To varying degrees:

Their leaders are inspired: Executive decision-makers are forward-thinking and curious; they see growth through a customer-centric lens and extend resources to meet a borrower’s needs first and foremost

Their operations are flexible: Teams are conditioned to expect change; responsibilities can be shared, consolidated, or transferred without spillage, and reporting structures can bend to accommodate new projects

There’s room to iterate: Teams have latitude to try new things and fail – there’s leeway to process learnings and develop (or deploy) best practices incrementally

Workflows and Infrastructure: Internal stakeholders consciously see their operation as a work in progress. Operators are scrappy and they embrace a “good, better, best” approach to getting a job done. There’s yearning to optimize workflows, or to migrate activities to consolidated systems, but costs create barriers and lead to stop gap solutions.

Lenders moving to a cash flow strategy typically reach their an inflection point because of:

Disconnected point solutions: Lenders use multiple technologies for different jobs like origination, qualification, or servicing; solutions are wedged tactically over time and are not flexible, configurable, nor integrated

Manual workflows and workarounds: In lieu of affordable end-to-end infrastructure, teams create manual integrations that can’t scale; fragmented activities amidst fragmented systems lead to poor documentation practices and security vulnerabilities

Little Transparency: Lenders cannot easily measure an applicant’s or an active borrower’s business performance; visibility issues during the qualification process, and then during servicing, creates default risk


The Tale of Two Cities moment will not end with a Dickensian small business lending economy, but rather the opposite.

Certainly we’re optimists, however our perspective is shaped by real resilience indicators that we see each day.

Lenders are future-proofing their operations so they can remain competitive and grow amidst a “cash flow rules” reality.

To achieve resiliency, and on a macro level, these lenders are working to solve the product-market fit issue that limits small business lending in the United States.

Emphasizing cash flow underwriting and deploying revenue-based repayment products is one core way that lenders are working to reach those objectives.

Considering their shared experiences, goals, and the ways they take action provides other lenders in similar circumstances with meaningful guidance.