Banks Face New Competitor and Opportunity for Small Business Loan Market

Cadence, a start-up focused on the marketplace for commercial debt is open for business for accredited investors and for the financial industry. Users contribute funds to packages of short-term loans that help businesses cover payroll and inventory.

The loans can range from three months to two years to meet short term initiatives, needs and/or emergencies that small businesses might find themselves in. The difference is that the loan packages are made transparent through Ethereum blockchain. Also, Cadence already has a major presence on the Bloomberg, creating a marketplace pool of institutional investors.

Cadence founder Nelson Chu said, “Cadence is doing its part to help power the growth of small to medium-sized enterprises by providing them market-driven cost efficiencies.” The company had been in a private beta through January before announcing the release this week. 

They recently closed a relatively small round of funding at $2 million. Coinbase Ventures is one of the investors. The company noted that interestingly, banking executives made up a great deal of the individual investors that have invested in the venture that they see as potential customers for buying debt on Cadence.

The private credit market could grow to more than $1 trillion by some estimates. Traditional banks can see this as a competitor on the retail loan side, but also an opportunity for a new opportunity to profit from the marketplace. The loan target levels in terms of interest rates are less than the present secondary markets that target short term lending opportunities for between 17% and 30% short term interest. According to Cadence, the target would be in the 10% range so they look to create market efficiencies. 

Once an investor has their identity checks run and is granted access to the system, they will see loans on offer. Traders can access the system via a Bloomberg Terminal. It is likely that the market will squeeze players like Biz2Credit’s margins more so than traditional business loans from banks. 

“If you go on any other private crowdfunding platform, the biggest complaint is you get locked out,” Chu said. “That first look, investors really appreciate.” It is another example of how a bank’s strategy will need to be well thought out to see the threats and opportunities at the same time.