Timothy Li: Good morning everybody. It's July twenty-seventh, twenty twenty-six. Half this year is already gone, but we have so much to w work towards two. we've been sk we've been trying to schedule this the episode for a long time now. And I know Trevor for a long time as well. We have a lot of stuff in common. so today we have Trevor on. he's doing a lot of different things. I want him to talk about his latest and greatest. well which he's been doing for a for a long time as well. but welcome to the show, Trevor. Tell us about your new venture or we can go all the way back to your high school years. whichever you wanna start. Our audience wants to know who you are.
Trevor Barran: Sure. Thanks, Tim. Thanks, and I appreciate you having me on the show. well, let's just start with the the current order of business. I'm CEO of FNCR. Our company is focused on small, medium enterprise finance and really providing solutions for the hundreds of thousands and millions of US small and medium enterprise companies that need finance. And I'll I'll tell you all about how I got there.
Timothy Li: Right. Right, yes. You know, we just had somebody from Block Equity out of New York City on this podcast right before this, and she they're all about small businesses helping them to get out of their mind from SBA loans out over the MCA loans. so there's definitely a lot of need for this for this space. But go back to the early two thousands, if not late nineteen nineties, what was working like before the internet age?
Trevor Barran: Well it's interesting. My first job out of university was in New York. I think the internet kind of landed my second year of university. So we had we had email when I was entering junior year. And you know, coming to New York then was a pretty interesting moment for financial services and fintech because a lot of these banks and credit card companies were migrating off of literally mainframe computers with like physical tape that you put in for the storage into
Timothy Li: Mm-hmm.
Trevor Barran: high-powered desktop. kind of analytic computers and mini computers. And so the ability to do real-time or overnight analytics was just hitting the scene when I
Timothy Li: Right. Right.
Trevor Barran: came to New York. And it was actually a big part of how I got into lending.
Timothy Li: That's crazy. I mean, you're you are and you've certainly played the chief technology officer for a lot of big companies. when you saw early onsets of the internet, how it changed or changing financial services, what what was that one aha moment that says, you know what? this really hits home. You know, things cannot be done yesterday, last week, it is all entirely possible now. What was your AI moment back in the nineties or two thousands?
Trevor Barran: that's an interesting question. I mean I'm not I'm not that prescient. I was just there building stuff and it made it so obvious what an impact
Timothy Li: Right. Right.
Trevor Barran: it was having on these companies. you know, one of one of the first things I was deployed on was building part of American Express's small business line of credit model. They were just getting into lines of credit for small business and they realized
Timothy Li: Right.
Trevor Barran: there's all this info we have from the charge cards of the owners of those businesses and
Timothy Li: Okay.
Trevor Barran: given new analytic capabilities, et cetera. You could go down to the merchant level, see the records of charge, figure out who's buying
Timothy Li: Right.
Trevor Barran: what from Home Depot versus you
Timothy Li: Right.
Trevor Barran: know, an electrical utility or whatever. You can actually model what's going on in their business from the owner's kind of spillover charge behavior on their charge card.
Timothy Li: Sure. A lot of people put their business on their personal card, you know. Yeah.
Trevor Barran: Yeah. And so that actually enabled us to build some of Alex's first models that did really well and ended up becoming a part of open. so I think it was
Timothy Li: Yeah.
Trevor Barran: more just by building stuff and then watching
Timothy Li: Right.
Trevor Barran: it kind of hit and be in action. I will
Timothy Li: Right.
Trevor Barran: say though, since you you mentioned the the magic and dirty word AI, I will say that the first time I thought about AI deeply was when I was kind of building all of these complicated models. And it was a real, you know, huge task to build a high-quality model in a massive solution space, right? Imagine I hand you the data set of 50 million
Timothy Li: Right. Yeah.
Trevor Barran: card members, transaction level information going back 50 years. It's just so much information, just in the Bureau, in the records of charge, but then compound upon that the time series and the different transforms
Timothy Li: Yeah.
Trevor Barran: and all the different things. You could do. It's very high-dimensional space. And we would spend so many weeks, months, years just model building and exploring that solution space. That's when I first got into AI, started using genetic algorithms to do better model building. That ultimately led
Timothy Li: Right.
Trevor Barran: me back to post-grad work where I studied AI for some years.
Timothy Li: Right, right. That's that's incredible. Just just amount of raw processing power that's required for MX back in the days to not understand, but just to update a data set would have taken probably days, if not weeks, to get eight months worth of
Trevor Barran: yeah, we would we would fight over queuing the jobs up you know, a week or a month in advance and if you if you knew certain people you could get
Timothy Li: Right.
Trevor Barran: it like jumped in the queue. I there's whole game around it. Yeah. Yeah, for sure.
Timothy Li: Sure, right. Resource is so precious nowadays. Turn it up, you know, turn it on. Any anything is possible.
Trevor Barran: Yep.
Timothy Li: What who was lending to small businesses other than the American Express which which which became the open network back in the days? Who was servicing these small businesses if Tim Lee wants to open up a you know like a TV repair shop back in the days and need some liquidity? Who do I go to in the nineties and two thousands back in the days?
Trevor Barran: Almost everyone. I think banks were doing
Timothy Li: okay.
Trevor Barran: an excellent job. Of servicing small businesses. This was
Timothy Li: Right.
Trevor Barran: pre-2008. So prior to the global financial crisis and the regulation that came in, I think banks were the first point of entry into the financial system for individuals and small businesses. I think banks
Timothy Li: Right.
Trevor Barran: had a pretty strong local community presence. They knew what was going on in their communities. they had local underwriting teams, so you could go to your local branch and say, hey,
Timothy Li: Right.
Trevor Barran: I need five million dollars because my business is doing X, Y, and Z and the local branch had a team of people who they could put on underwriting the loan and they could develop you a bespoke product. So I actually think the banks did a pretty good job up until GFC, but 2008 changed the whole picture.
Timothy Li: Right. Right. But American Americans Press was not, you know, in all the neighborhoods, doesn't have the branches, didn't have any relationship managers.
Trevor Barran: True.
Timothy Li: They were they made a a whole business out of this small business lending. And I think they were the early ver earlier guys that were doing just massive amount of direct mail, mailing to small businesses, right?
Trevor Barran: Yeah. Sure.
Timothy Li: How d how w what was their unique angle into the small business space, other than you know, having the American Express business card? what how do they sort of combat the local regional relationship people that the bank has employed to kind of guide the guide get the eyeballs of the small businesses? What was their approach marketing-wise, I guess?
Trevor Barran: Yeah, I mean I think they used credit cards. They they sort of I mean, I'm gonna use this this word a little bit too strongly. I'm gonna say they weaponized the credit card as a way of kind of new relationship origination. And then they added a whole bunch of other products and services, many banking products and services, onto that. I think even
Timothy Li: Right.
Trevor Barran: today, I would say they have such strong card member Value proposition and
Timothy Li: Mm-hmm.
Trevor Barran: loyalty, like it's clear that they stand behind their card members. And I think that they're an excellent marketing company in in many different ways. I I mean I I in in the decades that I've worked with many of the different credit cards and in and banks, I think we've optimized a lot of direct mail and email and other kinds of campaigns for
Timothy Li: Right.
Trevor Barran: them. And I will say they also made pretty good systematic use of of models and data and how to tune their machine. But you know, they also had scale. I mean, even back in the kind of early two thousands, we're still talking like 30 million card members. and snow that once you have that kind of scale, you kind of have enough information to know what your next marketing move should be. and and so I think there there is a sort of incumbent
Timothy Li: Right. It's crazy. That's insane. Sure. Right.
Trevor Barran: advantage there as well.
Timothy Li: Sure. Just sort of for for the common folks like me, a lot of plays was a lot of places would say, We don't accept American Express cards here. You know, you got anything else going on? Why is that? I mean can you tell us once and for all? Okay. Charge more to the merchants. Right.
Trevor Barran: It's because in general they charge, yeah, they charge more on average, to the merchant. Yeah, than v than the other networks do visa MasterCard Discover. And so that's why many merchants I don't even know if it's many. That's why there are some merchants who say, like, we won't take Amex. It's it's a pure financial thing. Yep.
Timothy Li: They don't they don't take it. But but with those sort of premium charges it comes with a lot of benefits as well. Right for American Express. If you door something up it will they'll refund you or something like that. I mean, what are the
Trevor Barran: And that's I think the endless negotiation that you know Amex has with its merchants. It's like, well, we're gonna bring the volume of extremely high quality customers. Why? Because
Timothy Li: Okay.
Trevor Barran: we put the customer first. And so we've got the clients that you want, but we're gonna charge you for it. And so there's there's the rub.
Timothy Li: Right. That's right. That's right. You know, we're gonna do all the acquisition for you and when they come they're gonna they're big spenders, you know, so to speak. Yeah.
Trevor Barran: Yep. Yep.
Timothy Li: What what was grad school? Where'd you go to grad school?
Trevor Barran: there is so so you know, I'm here in New York. I was running my own business at the time with with my co-founders, the data driven consulting kinds of business. And I was getting kind of a little bit obsessed with How the world of compute was ready for AI and how evolutionary
Timothy Li: Yeah.
Trevor Barran: techniques, so genetic algorithms, but other more esoteric and related techniques, could
Timothy Li: Right.
Trevor Barran: be used to evolve intelligence inside of a computer. And so at this time, there are only about ten places in the world you could go to to study this stuff.
Timothy Li: Okay. Yeah.
Trevor Barran: and I i it's funny. I
Timothy Li: Yeah.
Trevor Barran: I had I didn't study computer science in undergrad. I studied aerospace engineering. So
Timothy Li: Okay.
Trevor Barran: for me to jump into grad school, I had to convince the professors who were leading these ten different programs that they should bring me on as a grad student. And so I did the only thing I really could do, which was studied all of their research and then wrote them directly, kind of critiquing their research.
Timothy Li: Right.
Trevor Barran: it was a surprisingly you know, productive move. I think Six of them invited me to go and and visit with them,
Timothy Li: Okay.
Trevor Barran: and a number of them offered me to come and and work with them. And
Timothy Li: Followers, right.
Trevor Barran: so one one of those groups was down in New Mexico. So I went down, there's a joint program between the Santa Fe Research Institute and
Timothy Li: Yep.
Trevor Barran: University of New Mexico on
Timothy Li: Yeah.
Trevor Barran: what was then called complex adaptive systems, but it was basically a form of
Timothy Li: Yeah.
Trevor Barran: AI where Where the systems that you create can they can self-generate complexity. So instead of that coming
Timothy Li: Okay.
Trevor Barran: from the human outsider being like, go do this and then go do this, go do this, all of your energy inside of this type of system is spent building a system that will actually evolve that. It will get smarter and smarter on its own. Really, really interesting stuff.
Timothy Li: Right. Right. Yeah. One of the frontiers of AI research today, I read an article a c a couple of days ago, is the ability for AI to kind of self QA, self improve out
Trevor Barran: Sure.
Timothy Li: of the four or five tenants that, you know, should wake us up and say, Hey, we gotta do something about this. But that was research done what, fifteen years ago? When was that? When you spent time in the Yeah. Yeah.
Trevor Barran: It was like two thousand three, four, five. That's the time I was doing it.
Timothy Li: Yeah. And were and then you were running your analytics shop at the same time, on the side you're sausing.
Trevor Barran: Well, my partners kind of did me a solid and
Timothy Li: Yeah.
Trevor Barran: and kept kept everything going. And then after a few years of the program I came back and I actually brought some of the some of my peers to come work with us back in New York.
Timothy Li: Right right. So were did you c did you come back right before two thousand seven, two thousand eight, the meltdown? And what
Trevor Barran: Yeah.
Timothy Li: was that what was it like? Tell us, ground zero, tell us what was it like during that pivotal moment, that fourteen month, you know, of O eight, nine, maybe autumn eight in early two thousand nine. What was happening on the street there?
Trevor Barran: well, yeah. There's there's a lot of there's a lot
Timothy Li: Opportunities, I'm assuming.
Trevor Barran: of, you know, sort of mental and and real bloodshed, to be honest. but certainly there are a bunch of opportunities that were birthed in and around it. I I think this was the moment that
Timothy Li: Mm-hmm.
Trevor Barran: I started cluing in to how much the banking industry would change. And y I honestly couldn't have predicted all the ways in which it it did then change, but when regulation came in as stop gap, against future sort of 2008s. it had a particularly unexpected effect, I think, on
Timothy Li: Okay.
Trevor Barran: small business lending. So, you know, what happened was obviously when there's a crisis like this, the regulators they tweak a number of dials that they have access to. One of those Yeah. One of those
Timothy Li: Gar rail to gar rail. Yeah.
Trevor Barran: dials is How much kind of physical cash does the bank need to have? What are its capital reserves against a loan? Because, you know, when banks are massively overlevered, then the downside of an adjustment like this is huge and hard to control. but if you increase the capital reserve requirements that a bank has, they make less money on the loan, right? Because they
Timothy Li: That's right, yeah.
Trevor Barran: can't lever their capital as much. So that's a that's expected, and that's sort of explicitly part of what the regulators are saying. is stop being so speculative, you know, hold more cash. Fine. But they also kind of prescribed a number of other things that up until that point hadn't been mandatory for all forms of small business lending. Things like personal guarantees, things like very explicit time periods where if a business doesn't make a portion or all of its payments, then it goes into delinquency. Things like what happens with the paper once it's in delinquency? When do you have to foreclose? When do you have to get it off your books, etc., etc.? And all of those sound
Timothy Li: Right.
Trevor Barran: Logical and normal, but put together, I think they created they they removed a lot of the ability for a bank to come up with a bespoke lending solution for a small business that fits the needs of many different kinds of businesses. Some businesses are super seasonal. They would break their loan covenants just by the regular way they do business. Some,
Timothy Li: Right. Right. Right. Right. Yep.
Trevor Barran: you know, personal guarantees, that's another one. Many businesses, after they've achieved a certain Size threshold, it makes absolutely no sense for the owners to
Timothy Li: Right.
Trevor Barran: personally guarantee the loan. I mean, all the value is in the business. And if the business is already
Timothy Li: That's right.
Trevor Barran: the collateral and you're pulling a $10 million loan against your business, does it really help if you go after the homeowner's house of the business owner's house? Like, no, it's like, why do you need these things? And so
Timothy Li: Mm-hmm. Right. Doesn't make any sense. Right.
Trevor Barran: these were kind of mandated by regulation, and it's understandable why. But the
Timothy Li: Right.
Trevor Barran: sort of there's some unexpected consequences, and one of them is that. that small business lending became quite commoditized. Once the regulators define every dimension of the product, it's commodity. And so the only way
Timothy Li: That's right.
Trevor Barran: to win in a commodities market is price. So
Timothy Li: That's right.
Trevor Barran: now you enter a really interesting period that that kind of brings up
Timothy Li: Who was the winners and losers out of that whole whole time?
Trevor Barran: Well, I would say the banks generally lost a huge amount of share.
Timothy Li: Mm-hmm.
Trevor Barran: of the small business client network. And it's weird because banks spend all these energy, all this energy trying to acquire consumers and also they're pretty constructive during early stage business startup in many different ways,
Timothy Li: Yeah.
Trevor Barran: SBA program, et cetera, et cetera. But then when businesses kind of outgrow the bank's natural ability to write a loan, which in today's world is I would say somewhere, you know We it depends on the bank and the situation or whatever, but somewhere between one and five million dollars, a bank will like of
Timothy Li: Right.
Trevor Barran: of of lending need, of finance requirement.
Timothy Li: Yeah.
Trevor Barran: a business typically outgrows the capability of its bank to serve it. So great, now you have this sort of perverse problem where your best customers whose businesses grew, you can't serve them anymore, you lose them. And then
Timothy Li: Right, right between the big commercial banking side and then retail business, right?
Trevor Barran: And then big commercial doesn't start up again until you're at like forty, fifty million.
Timothy Li: Twenty, thirty right.
Trevor Barran: So all of this productive sort of growth where the these are businesses that made it, arguably, right? I mean, they have
Timothy Li: Right.
Trevor Barran: real revenue, they can support real debt, they've taken care of all the early stage startup risk, they're on their way. Now you lose them. And then you hope you acquire them again.
Timothy Li: Right.
Trevor Barran: so that's I think a big loss on the part of the banks.
Timothy Li: Right.
Trevor Barran: Not not their fault, by the way, but sort of outcome of the of the chips falling like this from the way regulation came into force. And the winners have been the private credit markets who came in to meet the need. And so now,
Timothy Li: Yeah.
Trevor Barran: you know, unregulated lenders are not subject to the same regulatory constraints. They can write a loan. That actually makes money productively, and they can shape it, they can shape the product in a way that makes sense for the business. And so it's actually a better product in many ways for that business. But the rates are a little bit higher because, I mean, the benefit of the regulator is you get super low costs of capital, right? So that's the trade.
Timothy Li: Yeah.
Trevor Barran: But I think for most businesses, rate is not really the thing they're optimizing for. Speed.
Timothy Li: Speed, access to liquidity, right? So
Trevor Barran: access and for and ability to use for growth.
Timothy Li: Right. So so tell us about Umdec, Cabid, Cann Capital if I if I may, and may maybe to a certain extent Sofy Lending Club's business unit. How do they come about and emerge out of this like vacuum sort of left over by the doppelgang regulation? Yeah.
Trevor Barran: Yeah, so I would call these guys sort of the the first real like scale data driven marketplaces for
Timothy Li: No.
Trevor Barran: small business lending. And I think they have generally done a great job of serving the part of the market that can be served from
Timothy Li: Right.
Trevor Barran: a data Driven, kind of highly automated model underwrite. and having built many of these
Timothy Li: Right.
Trevor Barran: models before, you know, we it it maybe goes without saying, but maybe it's worth saying it. The small and medium enterprise business world is one that from a loan or lender or an underwriter's perspective has the worst ratio of
Timothy Li: Right.
Trevor Barran: information to risk.
Timothy Li: Right. Autre part, yeah.
Trevor Barran: So if you think about the spectrum of lending going from a consumer all the way to a public company, consumers, you have all this info. You've got a credit bureau. You've got three in facts. You've got all this stuff that and all these models have been running for decades. And you can really use the sort of numbers to dial in the risk. And you you can do a pretty good job of a consumer loan, again, up to a certain dollar amount. In the public markets you also have all this info. It's highly regulated, everyone has to exactly, you know, gap accounting principles, every kind of filing, et cetera. And so you're also pretty information rich.
Timothy Li: Yeah. Right. Yep.
Trevor Barran: The small medium enterprise land is one where there is no bureau. You know this really well, Tim, more than anyone. There is no normalized set of information. different companies ha keep their books in different ways. They're all forced or required to use the same accounting principles. And so there's all of this heterogeneity
Timothy Li: Yeah.
Trevor Barran: and really actually just missing information.
Timothy Li: Yeah.
Trevor Barran: And so if you're trying to write a business a kind of one to ten or thirty million dollar loan, you have to put a lot of energy into the underwrite. So these platforms you spoke about, they did a really good job of servicing, I would say, the below two hundred and fifty thousand dollar part of the commercial business lending market pretty well. And
Timothy Li: Right. Right.
Trevor Barran: Long story short, I mean I I'm sure the risk heads of risk at these companies would I don't know, I don't know what they'd say. I'm interested. If any of them are listening, let's have the convo. But I think, you know, basically in my mind, it's sort of like a glorified credit card underwrite. You can kind of use a lot of owner bureau information
Timothy Li: Sure. Right.
Trevor Barran: That stuff kind of
Timothy Li: Little cash flow.
Trevor Barran: will get you to a few hundred thousand bucks. You augment it of course with everything you're learning about the business.
Timothy Li: Right.
Trevor Barran: If you can plaid connect to the bank accounts, that gives you a good amount of info that you can use on cash flow, et cetera, et cetera. and I think those solutions work pretty well up until about two fifty. Many of them
Timothy Li: Right.
Trevor Barran: are trying to push their envelope up to about a million, but when you really talk to them, I don't think any of them really succeeded in sort of at scale and in an automated
Timothy Li: Hm, right,
Trevor Barran: Way getting above
Timothy Li: right.
Trevor Barran: cut of 250, maybe 500.
Timothy Li: Right, right.
Trevor Barran: Why? Someone has to do expensive work once it gets to like a million bucks, right? And so
Timothy Li: Right.
Trevor Barran: there's this really interesting problem, well I find it very interesting, of between one and thirty million dollars, if the banks don't kind of make that much money on it because of the reasons we've discussed, if these
Timothy Li: Right. Yep.
Trevor Barran: data-driven platforms don't make that much money on it. then so how do you do it?
Timothy Li: Yeah, so we're gonna get to that real quick, but let's go back to the other big reset, which is where we kinda met during the God forbid, two on two thousand nineteen COVID era. small businesses almost got eviscerated eviscerated again with this horrible disease. and the United United States government and and a lot of other governments around the world sort of put their hands back into small businesses. Yeah, just like two thousand eight, two thousand nine. We worked together on a couple of things, but let's talk about this this when you saw that coming, the free trade coming in two thousand and nine, two thousand nine when the first case came out. What was in your head? And eventually what led you to formulate this new business that truly really helped small businesses get back on their feet? Tell us tell us give us that movie script.
Trevor Barran: Well, so yeah.
Timothy Li: November two thousand and nineteen or was it no, it was November two thousand eighteen and early two thousand nineteen.
Trevor Barran: Sure. Yeah, when COVID hit I was actually living down in Miami and then returned
Timothy Li: Lord.
Trevor Barran: returned to New York right it right in the middle of it. And well, obviously the entire world changed overnight and in the US in particular, I had a couple of observations. So one The segment, if you want to call it, of the economy that is composed of the small and medium enterprises, you know, across America, it became pretty obvious that that is the segment that employs America. I mean, we all know the numbers, but when the doors are shut and everyone's twiddling their thumbs, it it becomes pretty obvious, like, wait a second, you know,
Timothy Li: Small businesses. Yeah. Yeah.
Trevor Barran: this, you know, it's funny, we use the words too big to fail to talk about individual large corporations, but
Timothy Li: Right.
Trevor Barran: in a sense, this segment. Is like kind of half of the employment of the country, and it's too big to fail, which is
Timothy Li: Too important to fail. Yeah. Yeah.
Trevor Barran: why the government has to step in in these kinds of moments. Because the underpinning of the economy, if you know, arguably half of it is this like, you know, conglomeration of all these different businesses, there's this multiplier effect that works its way up through the economy.
Timothy Li: Ryan.
Trevor Barran: And I think, you know, it's it's not a surprise that the U.S. made the biggest kind of credit card. concessions to the small business segment of any country. And
Timothy Li: Right.
Trevor Barran: some of some of our common friends started businesses to take advantage of helping those small and medium enterprises
Timothy Li: Sure.
Trevor Barran: connect to those credits. So
Timothy Li: Right.
Trevor Barran: my my kind of business relationship to that was to try to, you know, think of ways to accelerate cash flow to those businesses. So
Timothy Li: Right. Right.
Trevor Barran: you could be a business that had a credit coming, maybe, and maybe the credit was a million dollars, but you didn't exactly know when, everyone was still trying to figure out what's going on. The IRS
Timothy Li: That's right. Right.
Trevor Barran: was processing a lot of these things, they didn't have enough agents, et cetera, et cetera. And so there's just
Timothy Li: Right. Right.
Trevor Barran: a lot of uncertainty ab around it. And a business can't do much with a million dollars that may or may not be coming a year from now. Like qu you can't do anything. You can't hire someone, you
Timothy Li: Yeah.
Trevor Barran: can't go like grow, you you just don't know what to do. Yeah.
Timothy Li: It's day to day, week to week. Yeah.
Trevor Barran: And we had this realization that whenever there is a receivable, like a credit coming from the government, this constitutes a kind of instantly minted new asset that the business didn't have the day before. And so
Timothy Li: Right.
Trevor Barran: if that's the case, then the balance sheet of the business looks better, and maybe you can underwrite it for a better loan. Obviously business, you know, day before didn't have an extra whatever two million dollars of credit coming and day after it does. But you have to understand
Timothy Li: Right. Right.
Trevor Barran: now how am I gonna value that asset? It's not in your bank account yet. So
Timothy Li: Right.
Trevor Barran: I know is there a discount rate or you know, how do I think about it? So I built a platform To lend against those credits that
Timothy Li: Right.
Trevor Barran: involved a number of private credit lenders who
Timothy Li: Right.
Trevor Barran: had some familiarity with government risk, so they kind of knew how to price and understand it. And we actually
Timothy Li: Mm-hmm. Right. Right.
Trevor Barran: ended up making a very productive market where businesses that had government credits could either get a loan against them or could just sell them to as an asset and get it off their balance.
Timothy Li: Right.
Trevor Barran: Yeah.
Timothy Li: Yep. Some people buy ninety cents, eighty cents on the dollar, you know, just to they can hold on to it. Whatever. Yeah. Right.
Trevor Barran: Eighty five cents on the dollar is actually how the market got made, which is a great trade if you're a business sitting there
Timothy Li: Yeah.
Trevor Barran: being like, Well, I I don't know what to do with a million dollars that I may or may not get, but I know what to do with eight hundred and fifty thousand right now, right? I
Timothy Li: Nee cash today, gotta right. Right.
Trevor Barran: can I can go deal with these debts or I can go hire these people or whatever. and so that ended up being enormously productive and ended up becoming our business model for FNCR, attaching to businesses that kind of they themselves have tens or hundreds of thousands of small business relationships and where we can supply a finance or a lending solution to their
Timothy Li: Mm.
Trevor Barran: clients. So in this in this company that where we met that we were talking about, this finance solution attached to an existing base of small businesses that had all of these credits and we and we figured out a good solution for them.
Timothy Li: Right, right, right, right. So just for our audience, right, it wasn't paycheck detection. This is employee retention credit. Which works a little bit different. differences are and why you focus on one, not the other, and what FC FNCR is doing now that's kind of related, borrow the same kind of concept. How are these balls all get tossed in the air and w what was the right balance there? And why why why are they
Trevor Barran: I I'm sorry, Tim, you cut out a bit. What you're saying why are the programs what? Yep.
Timothy Li: The PBP ERC. you focus on one, not the other. Tell us the difference of why are there so many different programs back in the days you know, created by the by the government. And also there are new programs now, right? With from the government, the the the big beautiful build created a bunch of stuff. you know, there's some R and D credit that's being renewed or not renewed and things like that. So there's just mass confusion out there on why there's so many programs, who's gonna take care of it. Do I call my SBA, you know, a liaison? What's what's happening now? And and why is government constantly involved in in creating these programs?
Trevor Barran: Yeah. I'll I'll give you my perspective on it. I've never I've never been a politician, so I'm not on the inside of a lot of these conversations.
Timothy Li: Yeah.
Trevor Barran: But I mentioned the word politics because I do think it has a role to play in
Timothy Li: Mm-hmm.
Trevor Barran: the the birthing and bringing to market of these different credits. But the the big picture here I think is kind of where we were about five, ten minutes ago, which is this sector is too important to fail. So
Timothy Li: Right. Right.
Trevor Barran: whenever there's a perturbation in the economy that
Timothy Li: Yeah.
Trevor Barran: can have a huge potentially negative effect on this base of the economy. the sort of one easy solve easy you know it
Timothy Li: Pump liquidity, right? Pump money.
Trevor Barran: Yeah. Is is is to pump money into it. And interestingly, if you analyze the last about fifteen years of government stimulus into the small business sector,
Timothy Li: Mm-hmm.
Trevor Barran: the what it looks like is the space kind of partitions between what I would call evergreen programs that happen all the time, things like R and D credits, but also various forms of government backed funding or grants like SBIR, STTR, certainly the SBA program in its various different forms. And those happen all the time and a huge amount of money goes out every year via those kinds of programs. And then I think the ones that catch everyone's attention are the one are the types of things you spoke about, these
Timothy Li: Right.
Trevor Barran: these kind of incident response type of type of credits. Sometimes they're like natural disasters, like FEMA credits and you know various different things to help businesses recover. Sometimes they are economic disaster related. Think of opportunity zones and things like that.
Timothy Li: Mm-hmm.
Trevor Barran: but you know, sometimes they're just to help businesses deal with the unexpected, as happened during COVID. currently, there's not completely dissimilar type of reimbursement, I guess, out there called tariff refunds. So,
Timothy Li: Mm-hmm.
Trevor Barran: you know, the the administration created all these tariffs, the Supreme Court ruled the tariffs were unconstitutional, and so now the government has begun to pay back a bunch of these tariffs that were charged. And so again you're yeah, you're in
Timothy Li: Right. In the hundreds of billions. Right.
Trevor Barran: this situation where business now suddenly has this newly minted receivable in the form of a tariff refund that didn't exist.
Timothy Li: Right.
Trevor Barran: Half a year ago or a year ago. And that presents
Timothy Li: Eight. Crazy.
Trevor Barran: another opportunity to get the business the money faster. So,
Timothy Li: Right.
Trevor Barran: you know, why does it happen? I think it's a mixture of the economy. You know, one of the levers that the Fed and Congress can pull to stabilize the economy involves inject direct stimulus. It's injecting money into small businesses
Timothy Li: Right.
Trevor Barran: that are at the base. And if deployed well and the right anti-fraud, And KYC, KYB and all of that are followed, then I think it's you know, it's it's actually a pretty good measure in a sense, in that it has a direct impact. It flows its back up through the economy almost instantly.
Timothy Li: Right. Right. Right.
Trevor Barran: That also arguably means it can be made more directed and efficient because it's directly stimulating. In other cases
Timothy Li: Right.
Trevor Barran: I think it's like almost purely sort of geopolitical, like tariff refree funds I don't think are direct stimulus anything. just
Timothy Li: Yeah, yes.
Trevor Barran: sort of like someone changed their mind.
Timothy Li: Somebody will still have to deliver all of these credits and funds, right? Just like Medicare, Medicaid. They dump a bunch of money to a the private enterprise and and they deal with the doctor's offices and all that stuff. So this is you know, when the economy is sick, right, they need to deliver all these refunds to get the economy healthy again. Let's talk about
Trevor Barran: Well you put your finger on something like pretty interesting, which is
Timothy Li: Yeah.
Trevor Barran: that the government itself, given that these f types of credits may
Timothy Li: Yep.
Trevor Barran: come from different departments, different divisions, different, you know, state or federal kind of governmental bodies,
Timothy Li: Right.
Trevor Barran: there isn't really one system or clearinghouse for all of it. And when the government or Congress or A politician announces a program, they may not have inside of the program's budget marketing for the actual program, education to let people know that it
Timothy Li: Right. Right. Right.
Trevor Barran: exists. And so you're right, it has become the kind of the purview of the private markets to figure out how to help businesses take advantage of this complex landscape of credits that is that is completely dynamic. And I think it probably will continue to be that case until and if the Fed decides that it wants to unify the way that it does this kind of stimulus.
Timothy Li: Mm-hmm. Yeah. one of the one of these days. One of the but they have they have money. We w we need to help them to disseminate this stuff. But let's talk about F N S FNCR. first tell us about this acronym. What does it mean? And my the question to you is why should FNCR exist in this whole crowded market that caters to small business?
Trevor Barran: Sure. well FNCR is just shorthand for financier. It exists because small
Timothy Li: I hope.
Trevor Barran: and medium enterprises do not have a financier. If you think about in today's world, we talked about pre and post GFC, et cetera. and if you think about what the kind of advisory needs a business has generally, I think they're kind of legal and accounting and finance are three of the big ones. People usually have a lawyer and accountant,
Timothy Li: Yeah. Maybe they have attack the content.
Trevor Barran: but who's their who's their financier? I think back in the day used be maybe their local bank ma bank manager, but maybe that was kind of fifteen, twenty years ago.
Timothy Li: Well today they get bombarded with all these analysts from PE firms. you wanna sell your business this and that and this, you know, I wanna talk them out of their business.
Trevor Barran: Sure, which is completely different than someone who's occupying a position of being your advisor as to what market terms are, given your business's situation.
Timothy Li: Right. Right. Right.
Trevor Barran: And What I learned in the first scale lending program that that we built, you and you were a part of that, was that the need for this role isn't just in and around government credits, it's around every kind of finance in this one to thirty million sort of finance range.
Timothy Li: Right.
Trevor Barran: I think we've already sort of said it, you have a financier up until kind of a million bucks, let's say, let's be generous, which is a common each. Of your local bank and these platforms or whatever. You have one again above 30 million. It's the commercial credit department of any one of these big banks.
Timothy Li: Yep. Yep. Yep.
Trevor Barran: So who is it in between those two things? And we realized this
Timothy Li: Nobody.
Trevor Barran: is a missing role in the economy right now. And no one had really tackled head-on the challenge of how to deal with the expensive. relatively information poor, like kind of related to the risk and extremely heterogeneous space of lending to, you know, one to thirty million dollar tickets into these SMEs. So we created this company to solve that problem.
Timothy Li: Finance here. Well, there are so many different variations, so many permutations, like you said, every business's need is different, different businesses, different everything, right? Lifestock of the business, different partners, owners, they're at different stages of their life. How do you keep it all together and make it scalable? How do you how do you get into the minds of these small business owners that are trying to grow, you know, in that vacuum of service, right? They they Cleared in need something, top line, bottom line, whatever it might be, right? They they don't have a CFO, right? They probably barely have a bookkeeper outsourced. What is a client of MNCR enjoying? What what would they get when they work with Trevor and your team?
Trevor Barran: Sure. well d to answer that question I'll first lay a bit more background about how the market actually works today. We talked before
Timothy Li: Yeah.
Trevor Barran: about the banks kind of exiting stage left and the pri generally, there are some exceptions and there are some
Timothy Li: Sure.
Trevor Barran: types of businesses that they're they're still really good service partners for. And that's mainly because the whole relationship pays them, even if the loan doesn't pay them. And this tend to be like doctors and dentists and veterinarians and things like that.
Timothy Li: Yep. Yep.
Trevor Barran: But outside of these sort of specialty groups, they're they're not so you know, they're just not geared up to and don't want to solve this problem. on the private credit side though, so really starting about fifteen, twenty years ago, individual non-bank lenders started filling this gap that was left by the banks as they started vr kind of retracting from this this kind of lending strategy. And what's super interesting is you put your finger right on the hard part of the problem here. It's heterogeneity. How do you deal with different industries, different
Timothy Li: Mm-hmm. Yep.
Trevor Barran: sizes, different kinds of balance sheet, different kinds of cash flow, different cyclicality,
Timothy Li: Yeah. Yeah.
Trevor Barran: different events in the life of business. I'm acquiring something, I own real estate, I'm selling it, yeah, all these different things.
Timothy Li: Mm-hmm. Different outcomes that these people are thinking about. Sure.
Trevor Barran: And it's not just how do you deal with it from the perspective of keeping it all straight in your head and deciding what to do next. It's also how do you deal with it from the perspective of developing A loan underwriting tape that fits that situation, that allows you to know predictably what your loss ratio will be, and so it allows you to price it. It's very,
Timothy Li: Mm-hmm.
Trevor Barran: very complex space. And I don't believe that that space and that that problem is going to be solved anytime soon by one actor. I think, you know, if you kind of do the back of the envelope math and you think about how much capital needs to be deployed through a machine that handles all of that complexity
Timothy Li: Mm-hmm.
Trevor Barran: in order to gather the data points that let you build the model correctly, I think you'll you'll you'll come to the conclusion, as I have, that it's not going to happen through kind of a one balance sheet strategy, not in the near term. So paradoxically, think about what's happened over the last You know, say 15 to 20 years, as the private credit markets have increased their lending into this space. Being you know, non-bank lenders, what has I think very organically happened, and it's logical, is people have hyper-specialized in just one kind of lending solution or one kind of need. So they don't, for instance, you know, lend to every industry. They only lend to dentists. I can think of a
Timothy Li: Yeah.
Trevor Barran: very successful example that did just that and did it very well. Or they don't lend for kind of non-real estate exposed businesses, they only lend on real estate. Or they have a specific rule, they're only going to deal with businesses that are between like five and eight years in existence
Timothy Li: Right.
Trevor Barran: and only with this revenue curve. And they all learn different pieces of this
Timothy Li: Mm.
Trevor Barran: very complex puzzle, and they develop the tape to do that part well. And now they can do that well all day long. The issue though is that when you're super niche like this, you don't have a huge lending facility or capability generally.
Timothy Li: Sure. Yep.
Trevor Barran: And so you don't become some massive bank and you don't have a huge kind of origination machine.
Timothy Li: Yeah.
Trevor Barran: you know, you might be sitting on half a billion to call it ten or twenty billion dollars, and that's
Timothy Li: Yep. Yep. Yep.
Trevor Barran: great, you're rotating it through, but you don't
Timothy Li: Yeah.
Trevor Barran: have a hundred people sort of that are your employees that are finding these deals and really kind of sourcing them from the lender's perspective.
Timothy Li: Right.
Trevor Barran: And so what happens is these private credit lenders Who who serve an increasing share of this market, they basically use brokers, like human physical brokers who pair up with two or three of the lenders and they go knock door to door, they call around in the local town that they're in, they meet people and they originate deals. And so
Timothy Li: Right. Right.
Trevor Barran: You know, kind of that's that's where we are in 2026. a huge amount
Timothy Li: Mm-hmm.
Trevor Barran: of businesses find capital through a broker that found them and works with a couple of these lenders. And I don't think that there's there's something beautiful about this in a way. I the the rub is that it's a pretty high brokerage commission that the lenders pay.
Timothy Li: Sure, yeah. Yep.
Trevor Barran: And that, you know, the borrow is ultimately paying, you know, kind of you
Timothy Li: That's right.
Trevor Barran: know, in in the interest rate and all of that. And it sort of tells you that the origination, the finding of the right deal is kind of the big problem in this space. And so We decided to create the platform that connects the about 2,000 sort of bank and non-bank lenders that that are in the US serving this space to the about two million businesses in it. And we do it pretty systematically. So frankly, we don't have our door open for like our shingle is not kind of open at scale for any business in any stage, in any part of this space. We're very in
Timothy Li: Sure. Right.
Trevor Barran: intentional about mounting what we call programs and defining a space that has a real need and a subset of those two thousand lenders who have a real solution for it. And we've mapped the space out. There's kind of I mean we we've chosen seven dimensions to describe the space. We know every capital provider in the space. And we partner, like I was telling you before, with businesses who have generally more than 50,000 small and medium enterprise relationships And th these businesses are large suppliers or things like PEOs or you know in healthcare GPOs, people who have huge numbers of contractual relationships, and I and I keep using the word relationship because it's not just about data, it's about a real relationship with the founders or owners of that business. We become their embedded lending capability to their customer base.
Timothy Li: Gotcha, gotcha, gotcha, gotcha. Wow. These programs seven all It's a it's a d it's a multivariate dating site between these complex businesses have deep rooted relationships and banks and partners are and private credits are looking for this thing and you guys are serving as that concierge, if you will, right? To say, hey, here's what you're looking for, doesn't that? Wow.
Trevor Barran: Yeah. Well, let me clarify what what I'm calling a program. So I create what I call a partnership with someone who has, you know, tens or hundreds of thousands of these businesses. There might be very different or or similar segments of businesses at different stages, all this other stuff going on inside of that customer base. A program is what I call a cohesive need. by a similar segment. So within someone's hundred thousand SME universe, there could be five or ten different programs. So that's how we kind of map the way that the markets have understood how to lend to the demand that's out there. We kind of create these widgets, if you want, programs I call them.
Timothy Li: Sure. Yeah.
Trevor Barran: And they're a segment of need that five to ten, for instance, capital providers. Would all want to lend to. And so then we make the matching problem a little bit more well-defined and systematic. So as opposed to kind of handling, you know, the same person handling like a dentist in the morning,
Timothy Li: To your six month of bank statement, let me know what you get.
Trevor Barran: you know, heavy equipment manufacturer midday, and like, you know, a massive hospital system in the evening, those could each be different programs within our universe that we've intentionally Formulated and we reach out through the real existing relationships to match solution to need. So, you know, one of the important things about this whole model, I've I've I'm a many time founder. I know how scarce founder time is. And having been on all sides of this equation with you know various different banking institutions and large kind of direct marketing capabilities, I really wanted us to find a solution. that didn't waste people's time. And I think it's a huge waste of people's time to call them or text them or email them unsolicited. And I also think these channels are kind of asymptotically approaching kind of zero conversion rate.
Timothy Li: Just a spray and pray strategy with a lot of these people. Like give me whatever and I'll just see what what sticks out there. It's not intentional like you.
Trevor Barran: Yeah, and with AI, our ability to generate phone calls and texts and
Timothy Li: Yeah.
Trevor Barran: emails cheaply has sort of increased orders of magnitude, which just to me means all these channels channels are decreasing by orders of magnitude in sort of unsolicited connection attempt. So we don't do any of that. Zero. We never market to someone if they didn't already invite us to speak to them. And we only speak to people through an existing relationship.
Timothy Li: I was gonna say probably not difficult to find capital partners, but I don't know how you guys get in front of these, you know, medium sized businesses, right, that needs that that they didn't even know this this concierge service existed. but word of mouth I can't really
Trevor Barran: Yeah, look, it's it's it's a careful relationship that has to be formed like properly, at the appropriate speed, with the right timing. It's a very deeply integrated relationship. For this to all work, we get access to a lot of internal proprietary data. We deploy on-prem, we do all the things to make sure that it's safe. But there's a lot of trust involved in this kind of deep integration because a business is going to offer us as a solution to their existing customer. And And there are kind of two big pros here. One, many large many large businesses that hold relationships with a huge number of small and medium enterprises, they're very happy if big chunks of their customer base get better funded because A, they can buy more stuff. And so it makes sense. there's a real win-win here. And we share a portion of the fees that we get. From the lenders, so the lenders pay us if a deal consummates, and in some cases they pay us to subscribe to one of these programs. We'll pay back a share of that to the group that has the primary customer relationship. So there's a real reason for everyone to care about this. And from the perspective of our partners, it's a double win. They get a new eBIT stream that they don't really have to do anything for that leverages this huge asset that's inside of their and their relationship, but carefully, in a controllable way. It's not prey spray and pray like you said. And because we roll this out as a series of programs, we have total control over the speed and the velocity and who and how fast. And that builds a lot of comfort.
Timothy Li: Let's wrap this up. It's fifty one minutes. This is one of the longest episodes I've recorded. If you're looking for if ev and CR is looking for a new class of small businesses you want to cater to, what's new right there? Are you looking for more veterinarian networks, stocks networks, home improvement folks? what are you ready to take on now, Trevor? in the year, next year.
Trevor Barran: what are we ready to take on now?
Timothy Li: Yeah, what kind of group of businesses?
Trevor Barran: Yeah, we fo yeah, we focused so far on real estate and healthcare industries. There's obviously a huge amount of complexity already in both of those industries. And I honestly think those two sort of industry typologies are gonna keep us pretty busy for the next couple of years. I think the next place that we're already starting to kind of look for partnerships in and around are gonna be You know, the the next ones the the reason the way I pick industries is is there enough data to make this not a waste of everyone's time so you can actually home in on the businesses that need capital, like quickly and early. And I think that unnext type that comes to mind are kind of e-commerce, you know, online transaction types of businesses is a good amount of data and information there. And then increasingly I do think that there's going be gonna be a whole wave of you know AI empowered business types, in a sense the the the grown up version of the future creator economy that I think are also gonna have a lot of data and information available.
Timothy Li: Yeah. Yeah, hey Trevor and Chase after this. This is particularly
Trevor Barran: Yeah.
Timothy Li: interesting we we're interested, right? So let build what the money wants you build. But again, Trevor, thank you so much for coming on. FNCR dot com. We'll put all the stuff in the show notes. Trevor is is very popular on LinkedIn, so it's not that hard to find him. all this stuff tomorrow and if there's any questions I'll answer it. Trevor Burrus, thank you so much for
Trevor Barran: Tim, thank you so much. I really enjoyed it. Talk soon.
Trevor Barran: Sure. Thanks, Tim. Thanks, and I appreciate you having me on the show. well, let's just start with the the current order of business. I'm CEO of FNCR. Our company is focused on small, medium enterprise finance and really providing solutions for the hundreds of thousands and millions of US small and medium enterprise companies that need finance. And I'll I'll tell you all about how I got there.
Timothy Li: Right. Right, yes. You know, we just had somebody from Block Equity out of New York City on this podcast right before this, and she they're all about small businesses helping them to get out of their mind from SBA loans out over the MCA loans. so there's definitely a lot of need for this for this space. But go back to the early two thousands, if not late nineteen nineties, what was working like before the internet age?
Trevor Barran: Well it's interesting. My first job out of university was in New York. I think the internet kind of landed my second year of university. So we had we had email when I was entering junior year. And you know, coming to New York then was a pretty interesting moment for financial services and fintech because a lot of these banks and credit card companies were migrating off of literally mainframe computers with like physical tape that you put in for the storage into
Timothy Li: Mm-hmm.
Trevor Barran: high-powered desktop. kind of analytic computers and mini computers. And so the ability to do real-time or overnight analytics was just hitting the scene when I
Timothy Li: Right. Right.
Trevor Barran: came to New York. And it was actually a big part of how I got into lending.
Timothy Li: That's crazy. I mean, you're you are and you've certainly played the chief technology officer for a lot of big companies. when you saw early onsets of the internet, how it changed or changing financial services, what what was that one aha moment that says, you know what? this really hits home. You know, things cannot be done yesterday, last week, it is all entirely possible now. What was your AI moment back in the nineties or two thousands?
Trevor Barran: that's an interesting question. I mean I'm not I'm not that prescient. I was just there building stuff and it made it so obvious what an impact
Timothy Li: Right. Right.
Trevor Barran: it was having on these companies. you know, one of one of the first things I was deployed on was building part of American Express's small business line of credit model. They were just getting into lines of credit for small business and they realized
Timothy Li: Right.
Trevor Barran: there's all this info we have from the charge cards of the owners of those businesses and
Timothy Li: Okay.
Trevor Barran: given new analytic capabilities, et cetera. You could go down to the merchant level, see the records of charge, figure out who's buying
Timothy Li: Right.
Trevor Barran: what from Home Depot versus you
Timothy Li: Right.
Trevor Barran: know, an electrical utility or whatever. You can actually model what's going on in their business from the owner's kind of spillover charge behavior on their charge card.
Timothy Li: Sure. A lot of people put their business on their personal card, you know. Yeah.
Trevor Barran: Yeah. And so that actually enabled us to build some of Alex's first models that did really well and ended up becoming a part of open. so I think it was
Timothy Li: Yeah.
Trevor Barran: more just by building stuff and then watching
Timothy Li: Right.
Trevor Barran: it kind of hit and be in action. I will
Timothy Li: Right.
Trevor Barran: say though, since you you mentioned the the magic and dirty word AI, I will say that the first time I thought about AI deeply was when I was kind of building all of these complicated models. And it was a real, you know, huge task to build a high-quality model in a massive solution space, right? Imagine I hand you the data set of 50 million
Timothy Li: Right. Yeah.
Trevor Barran: card members, transaction level information going back 50 years. It's just so much information, just in the Bureau, in the records of charge, but then compound upon that the time series and the different transforms
Timothy Li: Yeah.
Trevor Barran: and all the different things. You could do. It's very high-dimensional space. And we would spend so many weeks, months, years just model building and exploring that solution space. That's when I first got into AI, started using genetic algorithms to do better model building. That ultimately led
Timothy Li: Right.
Trevor Barran: me back to post-grad work where I studied AI for some years.
Timothy Li: Right, right. That's that's incredible. Just just amount of raw processing power that's required for MX back in the days to not understand, but just to update a data set would have taken probably days, if not weeks, to get eight months worth of
Trevor Barran: yeah, we would we would fight over queuing the jobs up you know, a week or a month in advance and if you if you knew certain people you could get
Timothy Li: Right.
Trevor Barran: it like jumped in the queue. I there's whole game around it. Yeah. Yeah, for sure.
Timothy Li: Sure, right. Resource is so precious nowadays. Turn it up, you know, turn it on. Any anything is possible.
Trevor Barran: Yep.
Timothy Li: What who was lending to small businesses other than the American Express which which which became the open network back in the days? Who was servicing these small businesses if Tim Lee wants to open up a you know like a TV repair shop back in the days and need some liquidity? Who do I go to in the nineties and two thousands back in the days?
Trevor Barran: Almost everyone. I think banks were doing
Timothy Li: okay.
Trevor Barran: an excellent job. Of servicing small businesses. This was
Timothy Li: Right.
Trevor Barran: pre-2008. So prior to the global financial crisis and the regulation that came in, I think banks were the first point of entry into the financial system for individuals and small businesses. I think banks
Timothy Li: Right.
Trevor Barran: had a pretty strong local community presence. They knew what was going on in their communities. they had local underwriting teams, so you could go to your local branch and say, hey,
Timothy Li: Right.
Trevor Barran: I need five million dollars because my business is doing X, Y, and Z and the local branch had a team of people who they could put on underwriting the loan and they could develop you a bespoke product. So I actually think the banks did a pretty good job up until GFC, but 2008 changed the whole picture.
Timothy Li: Right. Right. But American Americans Press was not, you know, in all the neighborhoods, doesn't have the branches, didn't have any relationship managers.
Trevor Barran: True.
Timothy Li: They were they made a a whole business out of this small business lending. And I think they were the early ver earlier guys that were doing just massive amount of direct mail, mailing to small businesses, right?
Trevor Barran: Yeah. Sure.
Timothy Li: How d how w what was their unique angle into the small business space, other than you know, having the American Express business card? what how do they sort of combat the local regional relationship people that the bank has employed to kind of guide the guide get the eyeballs of the small businesses? What was their approach marketing-wise, I guess?
Trevor Barran: Yeah, I mean I think they used credit cards. They they sort of I mean, I'm gonna use this this word a little bit too strongly. I'm gonna say they weaponized the credit card as a way of kind of new relationship origination. And then they added a whole bunch of other products and services, many banking products and services, onto that. I think even
Timothy Li: Right.
Trevor Barran: today, I would say they have such strong card member Value proposition and
Timothy Li: Mm-hmm.
Trevor Barran: loyalty, like it's clear that they stand behind their card members. And I think that they're an excellent marketing company in in many different ways. I I mean I I in in the decades that I've worked with many of the different credit cards and in and banks, I think we've optimized a lot of direct mail and email and other kinds of campaigns for
Timothy Li: Right.
Trevor Barran: them. And I will say they also made pretty good systematic use of of models and data and how to tune their machine. But you know, they also had scale. I mean, even back in the kind of early two thousands, we're still talking like 30 million card members. and snow that once you have that kind of scale, you kind of have enough information to know what your next marketing move should be. and and so I think there there is a sort of incumbent
Timothy Li: Right. It's crazy. That's insane. Sure. Right.
Trevor Barran: advantage there as well.
Timothy Li: Sure. Just sort of for for the common folks like me, a lot of plays was a lot of places would say, We don't accept American Express cards here. You know, you got anything else going on? Why is that? I mean can you tell us once and for all? Okay. Charge more to the merchants. Right.
Trevor Barran: It's because in general they charge, yeah, they charge more on average, to the merchant. Yeah, than v than the other networks do visa MasterCard Discover. And so that's why many merchants I don't even know if it's many. That's why there are some merchants who say, like, we won't take Amex. It's it's a pure financial thing. Yep.
Timothy Li: They don't they don't take it. But but with those sort of premium charges it comes with a lot of benefits as well. Right for American Express. If you door something up it will they'll refund you or something like that. I mean, what are the
Trevor Barran: And that's I think the endless negotiation that you know Amex has with its merchants. It's like, well, we're gonna bring the volume of extremely high quality customers. Why? Because
Timothy Li: Okay.
Trevor Barran: we put the customer first. And so we've got the clients that you want, but we're gonna charge you for it. And so there's there's the rub.
Timothy Li: Right. That's right. That's right. You know, we're gonna do all the acquisition for you and when they come they're gonna they're big spenders, you know, so to speak. Yeah.
Trevor Barran: Yep. Yep.
Timothy Li: What what was grad school? Where'd you go to grad school?
Trevor Barran: there is so so you know, I'm here in New York. I was running my own business at the time with with my co-founders, the data driven consulting kinds of business. And I was getting kind of a little bit obsessed with How the world of compute was ready for AI and how evolutionary
Timothy Li: Yeah.
Trevor Barran: techniques, so genetic algorithms, but other more esoteric and related techniques, could
Timothy Li: Right.
Trevor Barran: be used to evolve intelligence inside of a computer. And so at this time, there are only about ten places in the world you could go to to study this stuff.
Timothy Li: Okay. Yeah.
Trevor Barran: and I i it's funny. I
Timothy Li: Yeah.
Trevor Barran: I had I didn't study computer science in undergrad. I studied aerospace engineering. So
Timothy Li: Okay.
Trevor Barran: for me to jump into grad school, I had to convince the professors who were leading these ten different programs that they should bring me on as a grad student. And so I did the only thing I really could do, which was studied all of their research and then wrote them directly, kind of critiquing their research.
Timothy Li: Right.
Trevor Barran: it was a surprisingly you know, productive move. I think Six of them invited me to go and and visit with them,
Timothy Li: Okay.
Trevor Barran: and a number of them offered me to come and and work with them. And
Timothy Li: Followers, right.
Trevor Barran: so one one of those groups was down in New Mexico. So I went down, there's a joint program between the Santa Fe Research Institute and
Timothy Li: Yep.
Trevor Barran: University of New Mexico on
Timothy Li: Yeah.
Trevor Barran: what was then called complex adaptive systems, but it was basically a form of
Timothy Li: Yeah.
Trevor Barran: AI where Where the systems that you create can they can self-generate complexity. So instead of that coming
Timothy Li: Okay.
Trevor Barran: from the human outsider being like, go do this and then go do this, go do this, all of your energy inside of this type of system is spent building a system that will actually evolve that. It will get smarter and smarter on its own. Really, really interesting stuff.
Timothy Li: Right. Right. Yeah. One of the frontiers of AI research today, I read an article a c a couple of days ago, is the ability for AI to kind of self QA, self improve out
Trevor Barran: Sure.
Timothy Li: of the four or five tenants that, you know, should wake us up and say, Hey, we gotta do something about this. But that was research done what, fifteen years ago? When was that? When you spent time in the Yeah. Yeah.
Trevor Barran: It was like two thousand three, four, five. That's the time I was doing it.
Timothy Li: Yeah. And were and then you were running your analytics shop at the same time, on the side you're sausing.
Trevor Barran: Well, my partners kind of did me a solid and
Timothy Li: Yeah.
Trevor Barran: and kept kept everything going. And then after a few years of the program I came back and I actually brought some of the some of my peers to come work with us back in New York.
Timothy Li: Right right. So were did you c did you come back right before two thousand seven, two thousand eight, the meltdown? And what
Trevor Barran: Yeah.
Timothy Li: was that what was it like? Tell us, ground zero, tell us what was it like during that pivotal moment, that fourteen month, you know, of O eight, nine, maybe autumn eight in early two thousand nine. What was happening on the street there?
Trevor Barran: well, yeah. There's there's a lot of there's a lot
Timothy Li: Opportunities, I'm assuming.
Trevor Barran: of, you know, sort of mental and and real bloodshed, to be honest. but certainly there are a bunch of opportunities that were birthed in and around it. I I think this was the moment that
Timothy Li: Mm-hmm.
Trevor Barran: I started cluing in to how much the banking industry would change. And y I honestly couldn't have predicted all the ways in which it it did then change, but when regulation came in as stop gap, against future sort of 2008s. it had a particularly unexpected effect, I think, on
Timothy Li: Okay.
Trevor Barran: small business lending. So, you know, what happened was obviously when there's a crisis like this, the regulators they tweak a number of dials that they have access to. One of those Yeah. One of those
Timothy Li: Gar rail to gar rail. Yeah.
Trevor Barran: dials is How much kind of physical cash does the bank need to have? What are its capital reserves against a loan? Because, you know, when banks are massively overlevered, then the downside of an adjustment like this is huge and hard to control. but if you increase the capital reserve requirements that a bank has, they make less money on the loan, right? Because they
Timothy Li: That's right, yeah.
Trevor Barran: can't lever their capital as much. So that's a that's expected, and that's sort of explicitly part of what the regulators are saying. is stop being so speculative, you know, hold more cash. Fine. But they also kind of prescribed a number of other things that up until that point hadn't been mandatory for all forms of small business lending. Things like personal guarantees, things like very explicit time periods where if a business doesn't make a portion or all of its payments, then it goes into delinquency. Things like what happens with the paper once it's in delinquency? When do you have to foreclose? When do you have to get it off your books, etc., etc.? And all of those sound
Timothy Li: Right.
Trevor Barran: Logical and normal, but put together, I think they created they they removed a lot of the ability for a bank to come up with a bespoke lending solution for a small business that fits the needs of many different kinds of businesses. Some businesses are super seasonal. They would break their loan covenants just by the regular way they do business. Some,
Timothy Li: Right. Right. Right. Right. Yep.
Trevor Barran: you know, personal guarantees, that's another one. Many businesses, after they've achieved a certain Size threshold, it makes absolutely no sense for the owners to
Timothy Li: Right.
Trevor Barran: personally guarantee the loan. I mean, all the value is in the business. And if the business is already
Timothy Li: That's right.
Trevor Barran: the collateral and you're pulling a $10 million loan against your business, does it really help if you go after the homeowner's house of the business owner's house? Like, no, it's like, why do you need these things? And so
Timothy Li: Mm-hmm. Right. Doesn't make any sense. Right.
Trevor Barran: these were kind of mandated by regulation, and it's understandable why. But the
Timothy Li: Right.
Trevor Barran: sort of there's some unexpected consequences, and one of them is that. that small business lending became quite commoditized. Once the regulators define every dimension of the product, it's commodity. And so the only way
Timothy Li: That's right.
Trevor Barran: to win in a commodities market is price. So
Timothy Li: That's right.
Trevor Barran: now you enter a really interesting period that that kind of brings up
Timothy Li: Who was the winners and losers out of that whole whole time?
Trevor Barran: Well, I would say the banks generally lost a huge amount of share.
Timothy Li: Mm-hmm.
Trevor Barran: of the small business client network. And it's weird because banks spend all these energy, all this energy trying to acquire consumers and also they're pretty constructive during early stage business startup in many different ways,
Timothy Li: Yeah.
Trevor Barran: SBA program, et cetera, et cetera. But then when businesses kind of outgrow the bank's natural ability to write a loan, which in today's world is I would say somewhere, you know We it depends on the bank and the situation or whatever, but somewhere between one and five million dollars, a bank will like of
Timothy Li: Right.
Trevor Barran: of of lending need, of finance requirement.
Timothy Li: Yeah.
Trevor Barran: a business typically outgrows the capability of its bank to serve it. So great, now you have this sort of perverse problem where your best customers whose businesses grew, you can't serve them anymore, you lose them. And then
Timothy Li: Right, right between the big commercial banking side and then retail business, right?
Trevor Barran: And then big commercial doesn't start up again until you're at like forty, fifty million.
Timothy Li: Twenty, thirty right.
Trevor Barran: So all of this productive sort of growth where the these are businesses that made it, arguably, right? I mean, they have
Timothy Li: Right.
Trevor Barran: real revenue, they can support real debt, they've taken care of all the early stage startup risk, they're on their way. Now you lose them. And then you hope you acquire them again.
Timothy Li: Right.
Trevor Barran: so that's I think a big loss on the part of the banks.
Timothy Li: Right.
Trevor Barran: Not not their fault, by the way, but sort of outcome of the of the chips falling like this from the way regulation came into force. And the winners have been the private credit markets who came in to meet the need. And so now,
Timothy Li: Yeah.
Trevor Barran: you know, unregulated lenders are not subject to the same regulatory constraints. They can write a loan. That actually makes money productively, and they can shape it, they can shape the product in a way that makes sense for the business. And so it's actually a better product in many ways for that business. But the rates are a little bit higher because, I mean, the benefit of the regulator is you get super low costs of capital, right? So that's the trade.
Timothy Li: Yeah.
Trevor Barran: But I think for most businesses, rate is not really the thing they're optimizing for. Speed.
Timothy Li: Speed, access to liquidity, right? So
Trevor Barran: access and for and ability to use for growth.
Timothy Li: Right. So so tell us about Umdec, Cabid, Cann Capital if I if I may, and may maybe to a certain extent Sofy Lending Club's business unit. How do they come about and emerge out of this like vacuum sort of left over by the doppelgang regulation? Yeah.
Trevor Barran: Yeah, so I would call these guys sort of the the first real like scale data driven marketplaces for
Timothy Li: No.
Trevor Barran: small business lending. And I think they have generally done a great job of serving the part of the market that can be served from
Timothy Li: Right.
Trevor Barran: a data Driven, kind of highly automated model underwrite. and having built many of these
Timothy Li: Right.
Trevor Barran: models before, you know, we it it maybe goes without saying, but maybe it's worth saying it. The small and medium enterprise business world is one that from a loan or lender or an underwriter's perspective has the worst ratio of
Timothy Li: Right.
Trevor Barran: information to risk.
Timothy Li: Right. Autre part, yeah.
Trevor Barran: So if you think about the spectrum of lending going from a consumer all the way to a public company, consumers, you have all this info. You've got a credit bureau. You've got three in facts. You've got all this stuff that and all these models have been running for decades. And you can really use the sort of numbers to dial in the risk. And you you can do a pretty good job of a consumer loan, again, up to a certain dollar amount. In the public markets you also have all this info. It's highly regulated, everyone has to exactly, you know, gap accounting principles, every kind of filing, et cetera. And so you're also pretty information rich.
Timothy Li: Yeah. Right. Yep.
Trevor Barran: The small medium enterprise land is one where there is no bureau. You know this really well, Tim, more than anyone. There is no normalized set of information. different companies ha keep their books in different ways. They're all forced or required to use the same accounting principles. And so there's all of this heterogeneity
Timothy Li: Yeah.
Trevor Barran: and really actually just missing information.
Timothy Li: Yeah.
Trevor Barran: And so if you're trying to write a business a kind of one to ten or thirty million dollar loan, you have to put a lot of energy into the underwrite. So these platforms you spoke about, they did a really good job of servicing, I would say, the below two hundred and fifty thousand dollar part of the commercial business lending market pretty well. And
Timothy Li: Right. Right.
Trevor Barran: Long story short, I mean I I'm sure the risk heads of risk at these companies would I don't know, I don't know what they'd say. I'm interested. If any of them are listening, let's have the convo. But I think, you know, basically in my mind, it's sort of like a glorified credit card underwrite. You can kind of use a lot of owner bureau information
Timothy Li: Sure. Right.
Trevor Barran: That stuff kind of
Timothy Li: Little cash flow.
Trevor Barran: will get you to a few hundred thousand bucks. You augment it of course with everything you're learning about the business.
Timothy Li: Right.
Trevor Barran: If you can plaid connect to the bank accounts, that gives you a good amount of info that you can use on cash flow, et cetera, et cetera. and I think those solutions work pretty well up until about two fifty. Many of them
Timothy Li: Right.
Trevor Barran: are trying to push their envelope up to about a million, but when you really talk to them, I don't think any of them really succeeded in sort of at scale and in an automated
Timothy Li: Hm, right,
Trevor Barran: Way getting above
Timothy Li: right.
Trevor Barran: cut of 250, maybe 500.
Timothy Li: Right, right.
Trevor Barran: Why? Someone has to do expensive work once it gets to like a million bucks, right? And so
Timothy Li: Right.
Trevor Barran: there's this really interesting problem, well I find it very interesting, of between one and thirty million dollars, if the banks don't kind of make that much money on it because of the reasons we've discussed, if these
Timothy Li: Right. Yep.
Trevor Barran: data-driven platforms don't make that much money on it. then so how do you do it?
Timothy Li: Yeah, so we're gonna get to that real quick, but let's go back to the other big reset, which is where we kinda met during the God forbid, two on two thousand nineteen COVID era. small businesses almost got eviscerated eviscerated again with this horrible disease. and the United United States government and and a lot of other governments around the world sort of put their hands back into small businesses. Yeah, just like two thousand eight, two thousand nine. We worked together on a couple of things, but let's talk about this this when you saw that coming, the free trade coming in two thousand and nine, two thousand nine when the first case came out. What was in your head? And eventually what led you to formulate this new business that truly really helped small businesses get back on their feet? Tell us tell us give us that movie script.
Trevor Barran: Well, so yeah.
Timothy Li: November two thousand and nineteen or was it no, it was November two thousand eighteen and early two thousand nineteen.
Trevor Barran: Sure. Yeah, when COVID hit I was actually living down in Miami and then returned
Timothy Li: Lord.
Trevor Barran: returned to New York right it right in the middle of it. And well, obviously the entire world changed overnight and in the US in particular, I had a couple of observations. So one The segment, if you want to call it, of the economy that is composed of the small and medium enterprises, you know, across America, it became pretty obvious that that is the segment that employs America. I mean, we all know the numbers, but when the doors are shut and everyone's twiddling their thumbs, it it becomes pretty obvious, like, wait a second, you know,
Timothy Li: Small businesses. Yeah. Yeah.
Trevor Barran: this, you know, it's funny, we use the words too big to fail to talk about individual large corporations, but
Timothy Li: Right.
Trevor Barran: in a sense, this segment. Is like kind of half of the employment of the country, and it's too big to fail, which is
Timothy Li: Too important to fail. Yeah. Yeah.
Trevor Barran: why the government has to step in in these kinds of moments. Because the underpinning of the economy, if you know, arguably half of it is this like, you know, conglomeration of all these different businesses, there's this multiplier effect that works its way up through the economy.
Timothy Li: Ryan.
Trevor Barran: And I think, you know, it's it's not a surprise that the U.S. made the biggest kind of credit card. concessions to the small business segment of any country. And
Timothy Li: Right.
Trevor Barran: some of some of our common friends started businesses to take advantage of helping those small and medium enterprises
Timothy Li: Sure.
Trevor Barran: connect to those credits. So
Timothy Li: Right.
Trevor Barran: my my kind of business relationship to that was to try to, you know, think of ways to accelerate cash flow to those businesses. So
Timothy Li: Right. Right.
Trevor Barran: you could be a business that had a credit coming, maybe, and maybe the credit was a million dollars, but you didn't exactly know when, everyone was still trying to figure out what's going on. The IRS
Timothy Li: That's right. Right.
Trevor Barran: was processing a lot of these things, they didn't have enough agents, et cetera, et cetera. And so there's just
Timothy Li: Right. Right.
Trevor Barran: a lot of uncertainty ab around it. And a business can't do much with a million dollars that may or may not be coming a year from now. Like qu you can't do anything. You can't hire someone, you
Timothy Li: Yeah.
Trevor Barran: can't go like grow, you you just don't know what to do. Yeah.
Timothy Li: It's day to day, week to week. Yeah.
Trevor Barran: And we had this realization that whenever there is a receivable, like a credit coming from the government, this constitutes a kind of instantly minted new asset that the business didn't have the day before. And so
Timothy Li: Right.
Trevor Barran: if that's the case, then the balance sheet of the business looks better, and maybe you can underwrite it for a better loan. Obviously business, you know, day before didn't have an extra whatever two million dollars of credit coming and day after it does. But you have to understand
Timothy Li: Right. Right.
Trevor Barran: now how am I gonna value that asset? It's not in your bank account yet. So
Timothy Li: Right.
Trevor Barran: I know is there a discount rate or you know, how do I think about it? So I built a platform To lend against those credits that
Timothy Li: Right.
Trevor Barran: involved a number of private credit lenders who
Timothy Li: Right.
Trevor Barran: had some familiarity with government risk, so they kind of knew how to price and understand it. And we actually
Timothy Li: Mm-hmm. Right. Right.
Trevor Barran: ended up making a very productive market where businesses that had government credits could either get a loan against them or could just sell them to as an asset and get it off their balance.
Timothy Li: Right.
Trevor Barran: Yeah.
Timothy Li: Yep. Some people buy ninety cents, eighty cents on the dollar, you know, just to they can hold on to it. Whatever. Yeah. Right.
Trevor Barran: Eighty five cents on the dollar is actually how the market got made, which is a great trade if you're a business sitting there
Timothy Li: Yeah.
Trevor Barran: being like, Well, I I don't know what to do with a million dollars that I may or may not get, but I know what to do with eight hundred and fifty thousand right now, right? I
Timothy Li: Nee cash today, gotta right. Right.
Trevor Barran: can I can go deal with these debts or I can go hire these people or whatever. and so that ended up being enormously productive and ended up becoming our business model for FNCR, attaching to businesses that kind of they themselves have tens or hundreds of thousands of small business relationships and where we can supply a finance or a lending solution to their
Timothy Li: Mm.
Trevor Barran: clients. So in this in this company that where we met that we were talking about, this finance solution attached to an existing base of small businesses that had all of these credits and we and we figured out a good solution for them.
Timothy Li: Right, right, right, right. So just for our audience, right, it wasn't paycheck detection. This is employee retention credit. Which works a little bit different. differences are and why you focus on one, not the other, and what FC FNCR is doing now that's kind of related, borrow the same kind of concept. How are these balls all get tossed in the air and w what was the right balance there? And why why why are they
Trevor Barran: I I'm sorry, Tim, you cut out a bit. What you're saying why are the programs what? Yep.
Timothy Li: The PBP ERC. you focus on one, not the other. Tell us the difference of why are there so many different programs back in the days you know, created by the by the government. And also there are new programs now, right? With from the government, the the the big beautiful build created a bunch of stuff. you know, there's some R and D credit that's being renewed or not renewed and things like that. So there's just mass confusion out there on why there's so many programs, who's gonna take care of it. Do I call my SBA, you know, a liaison? What's what's happening now? And and why is government constantly involved in in creating these programs?
Trevor Barran: Yeah. I'll I'll give you my perspective on it. I've never I've never been a politician, so I'm not on the inside of a lot of these conversations.
Timothy Li: Yeah.
Trevor Barran: But I mentioned the word politics because I do think it has a role to play in
Timothy Li: Mm-hmm.
Trevor Barran: the the birthing and bringing to market of these different credits. But the the big picture here I think is kind of where we were about five, ten minutes ago, which is this sector is too important to fail. So
Timothy Li: Right. Right.
Trevor Barran: whenever there's a perturbation in the economy that
Timothy Li: Yeah.
Trevor Barran: can have a huge potentially negative effect on this base of the economy. the sort of one easy solve easy you know it
Timothy Li: Pump liquidity, right? Pump money.
Trevor Barran: Yeah. Is is is to pump money into it. And interestingly, if you analyze the last about fifteen years of government stimulus into the small business sector,
Timothy Li: Mm-hmm.
Trevor Barran: the what it looks like is the space kind of partitions between what I would call evergreen programs that happen all the time, things like R and D credits, but also various forms of government backed funding or grants like SBIR, STTR, certainly the SBA program in its various different forms. And those happen all the time and a huge amount of money goes out every year via those kinds of programs. And then I think the ones that catch everyone's attention are the one are the types of things you spoke about, these
Timothy Li: Right.
Trevor Barran: these kind of incident response type of type of credits. Sometimes they're like natural disasters, like FEMA credits and you know various different things to help businesses recover. Sometimes they are economic disaster related. Think of opportunity zones and things like that.
Timothy Li: Mm-hmm.
Trevor Barran: but you know, sometimes they're just to help businesses deal with the unexpected, as happened during COVID. currently, there's not completely dissimilar type of reimbursement, I guess, out there called tariff refunds. So,
Timothy Li: Mm-hmm.
Trevor Barran: you know, the the administration created all these tariffs, the Supreme Court ruled the tariffs were unconstitutional, and so now the government has begun to pay back a bunch of these tariffs that were charged. And so again you're yeah, you're in
Timothy Li: Right. In the hundreds of billions. Right.
Trevor Barran: this situation where business now suddenly has this newly minted receivable in the form of a tariff refund that didn't exist.
Timothy Li: Right.
Trevor Barran: Half a year ago or a year ago. And that presents
Timothy Li: Eight. Crazy.
Trevor Barran: another opportunity to get the business the money faster. So,
Timothy Li: Right.
Trevor Barran: you know, why does it happen? I think it's a mixture of the economy. You know, one of the levers that the Fed and Congress can pull to stabilize the economy involves inject direct stimulus. It's injecting money into small businesses
Timothy Li: Right.
Trevor Barran: that are at the base. And if deployed well and the right anti-fraud, And KYC, KYB and all of that are followed, then I think it's you know, it's it's actually a pretty good measure in a sense, in that it has a direct impact. It flows its back up through the economy almost instantly.
Timothy Li: Right. Right. Right.
Trevor Barran: That also arguably means it can be made more directed and efficient because it's directly stimulating. In other cases
Timothy Li: Right.
Trevor Barran: I think it's like almost purely sort of geopolitical, like tariff refree funds I don't think are direct stimulus anything. just
Timothy Li: Yeah, yes.
Trevor Barran: sort of like someone changed their mind.
Timothy Li: Somebody will still have to deliver all of these credits and funds, right? Just like Medicare, Medicaid. They dump a bunch of money to a the private enterprise and and they deal with the doctor's offices and all that stuff. So this is you know, when the economy is sick, right, they need to deliver all these refunds to get the economy healthy again. Let's talk about
Trevor Barran: Well you put your finger on something like pretty interesting, which is
Timothy Li: Yeah.
Trevor Barran: that the government itself, given that these f types of credits may
Timothy Li: Yep.
Trevor Barran: come from different departments, different divisions, different, you know, state or federal kind of governmental bodies,
Timothy Li: Right.
Trevor Barran: there isn't really one system or clearinghouse for all of it. And when the government or Congress or A politician announces a program, they may not have inside of the program's budget marketing for the actual program, education to let people know that it
Timothy Li: Right. Right. Right.
Trevor Barran: exists. And so you're right, it has become the kind of the purview of the private markets to figure out how to help businesses take advantage of this complex landscape of credits that is that is completely dynamic. And I think it probably will continue to be that case until and if the Fed decides that it wants to unify the way that it does this kind of stimulus.
Timothy Li: Mm-hmm. Yeah. one of the one of these days. One of the but they have they have money. We w we need to help them to disseminate this stuff. But let's talk about F N S FNCR. first tell us about this acronym. What does it mean? And my the question to you is why should FNCR exist in this whole crowded market that caters to small business?
Trevor Barran: Sure. well FNCR is just shorthand for financier. It exists because small
Timothy Li: I hope.
Trevor Barran: and medium enterprises do not have a financier. If you think about in today's world, we talked about pre and post GFC, et cetera. and if you think about what the kind of advisory needs a business has generally, I think they're kind of legal and accounting and finance are three of the big ones. People usually have a lawyer and accountant,
Timothy Li: Yeah. Maybe they have attack the content.
Trevor Barran: but who's their who's their financier? I think back in the day used be maybe their local bank ma bank manager, but maybe that was kind of fifteen, twenty years ago.
Timothy Li: Well today they get bombarded with all these analysts from PE firms. you wanna sell your business this and that and this, you know, I wanna talk them out of their business.
Trevor Barran: Sure, which is completely different than someone who's occupying a position of being your advisor as to what market terms are, given your business's situation.
Timothy Li: Right. Right. Right.
Trevor Barran: And What I learned in the first scale lending program that that we built, you and you were a part of that, was that the need for this role isn't just in and around government credits, it's around every kind of finance in this one to thirty million sort of finance range.
Timothy Li: Right.
Trevor Barran: I think we've already sort of said it, you have a financier up until kind of a million bucks, let's say, let's be generous, which is a common each. Of your local bank and these platforms or whatever. You have one again above 30 million. It's the commercial credit department of any one of these big banks.
Timothy Li: Yep. Yep. Yep.
Trevor Barran: So who is it in between those two things? And we realized this
Timothy Li: Nobody.
Trevor Barran: is a missing role in the economy right now. And no one had really tackled head-on the challenge of how to deal with the expensive. relatively information poor, like kind of related to the risk and extremely heterogeneous space of lending to, you know, one to thirty million dollar tickets into these SMEs. So we created this company to solve that problem.
Timothy Li: Finance here. Well, there are so many different variations, so many permutations, like you said, every business's need is different, different businesses, different everything, right? Lifestock of the business, different partners, owners, they're at different stages of their life. How do you keep it all together and make it scalable? How do you how do you get into the minds of these small business owners that are trying to grow, you know, in that vacuum of service, right? They they Cleared in need something, top line, bottom line, whatever it might be, right? They they don't have a CFO, right? They probably barely have a bookkeeper outsourced. What is a client of MNCR enjoying? What what would they get when they work with Trevor and your team?
Trevor Barran: Sure. well d to answer that question I'll first lay a bit more background about how the market actually works today. We talked before
Timothy Li: Yeah.
Trevor Barran: about the banks kind of exiting stage left and the pri generally, there are some exceptions and there are some
Timothy Li: Sure.
Trevor Barran: types of businesses that they're they're still really good service partners for. And that's mainly because the whole relationship pays them, even if the loan doesn't pay them. And this tend to be like doctors and dentists and veterinarians and things like that.
Timothy Li: Yep. Yep.
Trevor Barran: But outside of these sort of specialty groups, they're they're not so you know, they're just not geared up to and don't want to solve this problem. on the private credit side though, so really starting about fifteen, twenty years ago, individual non-bank lenders started filling this gap that was left by the banks as they started vr kind of retracting from this this kind of lending strategy. And what's super interesting is you put your finger right on the hard part of the problem here. It's heterogeneity. How do you deal with different industries, different
Timothy Li: Mm-hmm. Yep.
Trevor Barran: sizes, different kinds of balance sheet, different kinds of cash flow, different cyclicality,
Timothy Li: Yeah. Yeah.
Trevor Barran: different events in the life of business. I'm acquiring something, I own real estate, I'm selling it, yeah, all these different things.
Timothy Li: Mm-hmm. Different outcomes that these people are thinking about. Sure.
Trevor Barran: And it's not just how do you deal with it from the perspective of keeping it all straight in your head and deciding what to do next. It's also how do you deal with it from the perspective of developing A loan underwriting tape that fits that situation, that allows you to know predictably what your loss ratio will be, and so it allows you to price it. It's very,
Timothy Li: Mm-hmm.
Trevor Barran: very complex space. And I don't believe that that space and that that problem is going to be solved anytime soon by one actor. I think, you know, if you kind of do the back of the envelope math and you think about how much capital needs to be deployed through a machine that handles all of that complexity
Timothy Li: Mm-hmm.
Trevor Barran: in order to gather the data points that let you build the model correctly, I think you'll you'll you'll come to the conclusion, as I have, that it's not going to happen through kind of a one balance sheet strategy, not in the near term. So paradoxically, think about what's happened over the last You know, say 15 to 20 years, as the private credit markets have increased their lending into this space. Being you know, non-bank lenders, what has I think very organically happened, and it's logical, is people have hyper-specialized in just one kind of lending solution or one kind of need. So they don't, for instance, you know, lend to every industry. They only lend to dentists. I can think of a
Timothy Li: Yeah.
Trevor Barran: very successful example that did just that and did it very well. Or they don't lend for kind of non-real estate exposed businesses, they only lend on real estate. Or they have a specific rule, they're only going to deal with businesses that are between like five and eight years in existence
Timothy Li: Right.
Trevor Barran: and only with this revenue curve. And they all learn different pieces of this
Timothy Li: Mm.
Trevor Barran: very complex puzzle, and they develop the tape to do that part well. And now they can do that well all day long. The issue though is that when you're super niche like this, you don't have a huge lending facility or capability generally.
Timothy Li: Sure. Yep.
Trevor Barran: And so you don't become some massive bank and you don't have a huge kind of origination machine.
Timothy Li: Yeah.
Trevor Barran: you know, you might be sitting on half a billion to call it ten or twenty billion dollars, and that's
Timothy Li: Yep. Yep. Yep.
Trevor Barran: great, you're rotating it through, but you don't
Timothy Li: Yeah.
Trevor Barran: have a hundred people sort of that are your employees that are finding these deals and really kind of sourcing them from the lender's perspective.
Timothy Li: Right.
Trevor Barran: And so what happens is these private credit lenders Who who serve an increasing share of this market, they basically use brokers, like human physical brokers who pair up with two or three of the lenders and they go knock door to door, they call around in the local town that they're in, they meet people and they originate deals. And so
Timothy Li: Right. Right.
Trevor Barran: You know, kind of that's that's where we are in 2026. a huge amount
Timothy Li: Mm-hmm.
Trevor Barran: of businesses find capital through a broker that found them and works with a couple of these lenders. And I don't think that there's there's something beautiful about this in a way. I the the rub is that it's a pretty high brokerage commission that the lenders pay.
Timothy Li: Sure, yeah. Yep.
Trevor Barran: And that, you know, the borrow is ultimately paying, you know, kind of you
Timothy Li: That's right.
Trevor Barran: know, in in the interest rate and all of that. And it sort of tells you that the origination, the finding of the right deal is kind of the big problem in this space. And so We decided to create the platform that connects the about 2,000 sort of bank and non-bank lenders that that are in the US serving this space to the about two million businesses in it. And we do it pretty systematically. So frankly, we don't have our door open for like our shingle is not kind of open at scale for any business in any stage, in any part of this space. We're very in
Timothy Li: Sure. Right.
Trevor Barran: intentional about mounting what we call programs and defining a space that has a real need and a subset of those two thousand lenders who have a real solution for it. And we've mapped the space out. There's kind of I mean we we've chosen seven dimensions to describe the space. We know every capital provider in the space. And we partner, like I was telling you before, with businesses who have generally more than 50,000 small and medium enterprise relationships And th these businesses are large suppliers or things like PEOs or you know in healthcare GPOs, people who have huge numbers of contractual relationships, and I and I keep using the word relationship because it's not just about data, it's about a real relationship with the founders or owners of that business. We become their embedded lending capability to their customer base.
Timothy Li: Gotcha, gotcha, gotcha, gotcha. Wow. These programs seven all It's a it's a d it's a multivariate dating site between these complex businesses have deep rooted relationships and banks and partners are and private credits are looking for this thing and you guys are serving as that concierge, if you will, right? To say, hey, here's what you're looking for, doesn't that? Wow.
Trevor Barran: Yeah. Well, let me clarify what what I'm calling a program. So I create what I call a partnership with someone who has, you know, tens or hundreds of thousands of these businesses. There might be very different or or similar segments of businesses at different stages, all this other stuff going on inside of that customer base. A program is what I call a cohesive need. by a similar segment. So within someone's hundred thousand SME universe, there could be five or ten different programs. So that's how we kind of map the way that the markets have understood how to lend to the demand that's out there. We kind of create these widgets, if you want, programs I call them.
Timothy Li: Sure. Yeah.
Trevor Barran: And they're a segment of need that five to ten, for instance, capital providers. Would all want to lend to. And so then we make the matching problem a little bit more well-defined and systematic. So as opposed to kind of handling, you know, the same person handling like a dentist in the morning,
Timothy Li: To your six month of bank statement, let me know what you get.
Trevor Barran: you know, heavy equipment manufacturer midday, and like, you know, a massive hospital system in the evening, those could each be different programs within our universe that we've intentionally Formulated and we reach out through the real existing relationships to match solution to need. So, you know, one of the important things about this whole model, I've I've I'm a many time founder. I know how scarce founder time is. And having been on all sides of this equation with you know various different banking institutions and large kind of direct marketing capabilities, I really wanted us to find a solution. that didn't waste people's time. And I think it's a huge waste of people's time to call them or text them or email them unsolicited. And I also think these channels are kind of asymptotically approaching kind of zero conversion rate.
Timothy Li: Just a spray and pray strategy with a lot of these people. Like give me whatever and I'll just see what what sticks out there. It's not intentional like you.
Trevor Barran: Yeah, and with AI, our ability to generate phone calls and texts and
Timothy Li: Yeah.
Trevor Barran: emails cheaply has sort of increased orders of magnitude, which just to me means all these channels channels are decreasing by orders of magnitude in sort of unsolicited connection attempt. So we don't do any of that. Zero. We never market to someone if they didn't already invite us to speak to them. And we only speak to people through an existing relationship.
Timothy Li: I was gonna say probably not difficult to find capital partners, but I don't know how you guys get in front of these, you know, medium sized businesses, right, that needs that that they didn't even know this this concierge service existed. but word of mouth I can't really
Trevor Barran: Yeah, look, it's it's it's a careful relationship that has to be formed like properly, at the appropriate speed, with the right timing. It's a very deeply integrated relationship. For this to all work, we get access to a lot of internal proprietary data. We deploy on-prem, we do all the things to make sure that it's safe. But there's a lot of trust involved in this kind of deep integration because a business is going to offer us as a solution to their existing customer. And And there are kind of two big pros here. One, many large many large businesses that hold relationships with a huge number of small and medium enterprises, they're very happy if big chunks of their customer base get better funded because A, they can buy more stuff. And so it makes sense. there's a real win-win here. And we share a portion of the fees that we get. From the lenders, so the lenders pay us if a deal consummates, and in some cases they pay us to subscribe to one of these programs. We'll pay back a share of that to the group that has the primary customer relationship. So there's a real reason for everyone to care about this. And from the perspective of our partners, it's a double win. They get a new eBIT stream that they don't really have to do anything for that leverages this huge asset that's inside of their and their relationship, but carefully, in a controllable way. It's not prey spray and pray like you said. And because we roll this out as a series of programs, we have total control over the speed and the velocity and who and how fast. And that builds a lot of comfort.
Timothy Li: Let's wrap this up. It's fifty one minutes. This is one of the longest episodes I've recorded. If you're looking for if ev and CR is looking for a new class of small businesses you want to cater to, what's new right there? Are you looking for more veterinarian networks, stocks networks, home improvement folks? what are you ready to take on now, Trevor? in the year, next year.
Trevor Barran: what are we ready to take on now?
Timothy Li: Yeah, what kind of group of businesses?
Trevor Barran: Yeah, we fo yeah, we focused so far on real estate and healthcare industries. There's obviously a huge amount of complexity already in both of those industries. And I honestly think those two sort of industry typologies are gonna keep us pretty busy for the next couple of years. I think the next place that we're already starting to kind of look for partnerships in and around are gonna be You know, the the next ones the the reason the way I pick industries is is there enough data to make this not a waste of everyone's time so you can actually home in on the businesses that need capital, like quickly and early. And I think that unnext type that comes to mind are kind of e-commerce, you know, online transaction types of businesses is a good amount of data and information there. And then increasingly I do think that there's going be gonna be a whole wave of you know AI empowered business types, in a sense the the the grown up version of the future creator economy that I think are also gonna have a lot of data and information available.
Timothy Li: Yeah. Yeah, hey Trevor and Chase after this. This is particularly
Trevor Barran: Yeah.
Timothy Li: interesting we we're interested, right? So let build what the money wants you build. But again, Trevor, thank you so much for coming on. FNCR dot com. We'll put all the stuff in the show notes. Trevor is is very popular on LinkedIn, so it's not that hard to find him. all this stuff tomorrow and if there's any questions I'll answer it. Trevor Burrus, thank you so much for
Trevor Barran: Tim, thank you so much. I really enjoyed it. Talk soon.
