Banks want to lend. Businesses want to borrow. On the face of it, this seems like a perfect match. But for reasons that baffle many small businesses, loans often remain elusive. That’s changing, though, thanks to high integrity accounting.
What is high integrity accounting? Simply put, it’s when an accountant uses Xero to give themselves more confidence that a business client’s financials are orderly, accurate and up to date. Orderly and accurate data has long been accountants’ specialty, but up-to-date has been a taller order. Paper records are outdated almost as soon as they’re printed. Desktop-based accounting software, which sequesters records on a hard drive, isn’t much better.
A cloud-based platform like Xero, on the other hand, provides a real-time view of a small business’s finances. This includes a clear audit trail of data that hasn’t been touched by human hand, such as bank reconciliations, records of received income and invoices from large suppliers.
When an accountant enters the picture, he or she can monitor what happens every day in a client’s small business. Xero’s Assurance Dashboard gives accountants the tools they need to be more confident of the integrity of data. Reducing risk for lenders and opening the door to capital.
“We’re connecting our accounting channel to the banking channel using technology to glue it all together, and that’s going to help small businesses grow,” says Xero CEO and founder Rod Drury.
Lenders love high-integrity accounting. Why? Because it lowers their cost of due diligence. Loan officers can spend days examining small-business bank statements, payslips, and loan and credit card balances. Given the expense, and the relatively modest amounts that small businesses borrow, it’s no surprise that lenders have been hesitant to fully engage the small business segment.
Today’s technology is changing that attitude. In fact, we’re consistently hearing from banks that clients on Xero are more profitable than the average borrower. Lenders are finding that Xero customers tend to be lower risk and use additional financial products such as credit cards, credit lines and family trust planning.
Seeking a loan can also be arduous for a small business. Without Xero, a business owner must take a desktop file, change it to a format the bank can read, and deliver the files to the bank. There will be inevitable back and forth between the lender and applicant as more documentation is required. The process rarely takes less than 3 or 4 weeks.
Compare that with NAB’s Quickbiz loans. Thanks to an integration with NAB and Xero, small businesses simply upload their Xero financial data to NAB for an instant decision on loans of up to $100,000. No need for collateral, no need to fill out long forms. NAB bases its judgment on three key elements: the business’s profit-and-loss report, its balance sheet, and the transaction history from its trading account. If a loan is approved, NAB delivers the funds within one business day.
Alternative lenders Moula and Waddle offer similarly automated decisions based on Xero data, with loans or invoice financing of up to $250,000. And once funds are disbursed, these two lenders send interest and repayment data back into Xero, where it appears within a list of transactions to reconcile.
Add-on app partners like Spotlight, Fathom and FUTRLI take high-integrity accounting one step further. They can prepare reports that forecast cash flow. Banks appreciate this, and Xero accounting partners can use the apps to help their clients determine what type of loan is best for them.
It’s clear that high integrity accounting benefits each of the parties it touches. Small-business banking managers are already reaching out to Xero-certified accountants to build relationships with them. These accountants, in turn, can direct their small-business clients toward ready sources of capital, which strengthens the partner-client relationship. The Explorer tab in Xero HQ lets accountants know which banks and apps their clients are already using. And business owners can find quick and reasonably priced loans, without a lot of hurdles to jump through, leaving them with energy to focus on what they love: growing their business.