Smart Precision Finance for Small Businesses Funding

摘要

Small businesses are at the heart of most economies. Yet their combination of high risk and opacity with uncertain return dissuades banks and other investors from providing the necessary financial backing to get a business off the ground. Overcoming the significant asymmetries of information is simply not seen as worth the high transaction costs required. Technology-particularly digitalization and data analytics-has in recent years lowered the transaction costs of small business lending through automated systems capable of analyzing varied data sources indicative of the borrower's solvency and stability. Ownership of this data by large service providers has, in this new market, tended to indicate a potential capture of small business borrowers by the lending firms with the largest networks. This paper sketches the parameters of an application for the 'smart precision financing' of small businesses, through an analysis of the legal and technological innovations that could be introduced to make such financing simpler while allowing the market to retain dynamism, thus increasing funding and funding options available to small businesses. The precision financing concept seeks to decrease information asymmetry and transaction costs while also limiting agency risk of a borrower misapplying funds. The recommendations offered are also designed to be complementary to eventual business growth toward venture capital investment.