Small business owners should be provided with well-founded advice, just like a doctor would prescribe a proven treatment.
However, small business owners often encounter reports advising decisions based on trends from limited research. Unfortunately, many of these reports present inaccurate information due to a lack of understanding between facts and opinions.
In this article we review and debunk a misleading report published by a leading small business lender that whose data suggests that businesses are ready to "invest" in their future. While their report intends on striking new business, their tactics are misleading at best.
Thomas Tramaglini, Chief Operations Officer
Partner, Center for MCA Research
Just as no doctor would prescribe a medication without thorough testing, would you feel comfortable making crucial business decisions based on a report that hasn't been adequately tested?
Someone is sick; someone goes to the doctor for an examination; and when a diagnosis is made, one would expect the doctor to prescribe a treatment that works based on research of many cases. A doctor would never prescribe a treatment based off of research from a very small study, ever. In fact, they call that malpractice.
In the same manner, small business owners should never make any type of strategic decisions based on reports which suggest they should invest in their businesses unless the study is based in rigorous, reliable, research.
You get the idea.
Small business owners deserve to receive information based on strong, statistically significant evidence. Each year, IOU, an alternative lender in the fintech space reports on the state of small businesses to purportedly encourage small business owners to apply for loans. The report is far from research and this article reviews and debunks what they call the "state of small businesses."
IOU Financial and Their State of Small Business Report
IOU is a leading small business loan companies. According to IOU, "IOU Financial works with broker partners to provide successful small businesses access to the capital they need to seize growth opportunities quickly. In a unique approach to lending, the advanced, automated application and approval system accurately assesses applicant’s financial realities, with an emphasis on day-today cash flow. It makes loans of up to $1,500,000 to qualified applicants within 24 hours in most cases."
IOU claims to have initiated over $1.5 billion in financing through more than 11,000 loans to small businesses.
IOU positions itself as a frontrunner and influencer in the alternative lending sector. For several years, IOU has been a leading figure, regularly releasing the State of Small Business Report to gauge the sentiments of small business owners and monitor industry trends. The report, published biannually, aims to gain insight into small business owners' perspectives on their businesses beyond what is portrayed in the media.
While this report is circulated and covered in media outlets, it should be used cautiously as a tool for small businesses making decisions. The report and its findings, however, are deemed misleading. Our criticism is not directed at IOU's lending capabilities, but rather at their research reporting practices, which require significant improvement. Small business owners are advised against relying on such a deceptive report.
Why this matters.
To those in the industry, IOU is one of the better lenders because of their lower high rates and reputation of being one of the best loan providers to small business. Furthermore, IOU has marketed itself on being trustworthy and responsible to small business owners. We have provided a screenshot of their website below.
Source: https://ioufinancial.com/
Every year, various MCA and alternative loan companies like IOU release reports based on their own research. These reports are designed to sway small business owners when it comes to borrowing money, ultimately benefiting the lenders.
These reports are also distributed to the media and influence entities that offer loan products like merchant cash advance brokers. A key resource in the MCA and alternative loan industry is www.debanked.com. In a recent article featuring the IOU report, www.debanked.com expressed concerns about the challenges faced by small businesses, including inflation and public health factors.
According to IOU's latest report, small business owners generally have a positive outlook on their current and future business prospects... with the "vast majority" planning to invest in their growth in the "next six months!"
Why this report matters and is because nobody checks the "research."
And this is just unfortuntate and bad. If someone told you to jump off a bridge, would you do it? Or would you ask questions first?
Just Bad Science Makes Those Report Misleading.
People or organizations should stick to what they can do.
Oxford defines research as "the systematic investigation into and study of materials and sources in order to establish facts and reach new conclusions."
In order to establish facts, research must be done according to standards which lead to making assumptions for replication or guidance for practice. When guidance is provided without sound evidence, it can be deadly to small business owners.
IOU and MCA companies are organizations that provide funding to small businesses in many ways, They are not research institutions and should never try to be... ever.
Stuff in the IOU report which is just missing.
IOU reports on two statistics which should provide some backing that the research or report has "good" data.
The IOU Report does not show much.
1 - Margin of Error.
The Margin of Error indicates the level of random sampling error present in the results of a survey, a statistic commonly observed in political polling. Individuals are contacted randomly to respond to inquiries, resulting in sampling error. A larger sample size, among other factors, reduces the margin of error.
However, this report lacks any mention of random sampling, making it impossible to ascertain the 9% margin of error for the questions posed and how confidence levels relate to this margin. A 9% margin of error in any study can imply various things, such as the importance of accuracy and the clarity of survey questions. Further insights could be gained.
In this survey, a 9% margin of error and a 95% confidence level are considered weaknesses by researchers, prompting numerous questions.
2 - Confidence Interval (Level).
Confidence intervals indicate the likelihood of a test (such as a survey) being accurate if the test were to be repeated. IOU's report states a 95% confidence level, suggesting a 5% chance of survey inaccuracy.
However, the report lacks a specific methodology, and a 5% margin of error may not hold significance without statistical coefficients indicating the study's relationships are statistically valid.
The study merely presents responses from small business owners on a particular topic without any additional information. It would be beneficial to explore correlations between business owners' perceptions of trends and readily available SBA, census, or economic data.
Therefore, the utilization of confidence levels is inadequate without leveraging the collected data, making it weak in its current form.
Generalization. One BIG scientific reason for why IOU's report is misleading - Its sample is weak and does not statistically support the claims they are making.
In the preceding section, I highlighted the study's weaknesses in terms of the statistics related to confidence interval and margin of error.
What makes this report deceptive?
It is because the data and the study lack robustness in research.
The primary rule for any study is to ensure that the sample size is sufficiently large to allow for generalizing the results to a broader population.
The study by IOU is too feeble to be presented to anyone and should never have been made public.
When conducting research, including survey research, it is essential to have a large enough sample size to make assumptions for the entire population. For example, if a cancer treatment was tested on 20 individuals with varying outcomes, it would not be appropriate to apply the same treatment to the entire population. However, if the treatment was tested on 10,000 individuals with significant outcomes, it would be reasonable to conclude that we have a better understanding of the treatment and that it could be replicated with similar results on a larger population.
Why this report is too weak.
This published report had a population of 117 respondents. It is not clear for what their response rate was or how the survey was deployed, whether the questions in the survey were validated, randomized, etc.
Page 6 of the report lists the population of small businesses in America as 33.3 Million. We entered in the number of respondents into statistical software (SPSS) and ran some simple diagnostics. In order for one to make a statement or conclusion which can be applied to all small business owners (population of 33.3 Million) the report would have had to have had a minimum of 385 respondents for the survey. This is more than 3 times the number of respondents who were reported as answering the survey.
What does this mean? It means that what IOU suggests in their report is not supported by adequate evidence, or the study too weak.
So, in the same way a doctor should never treat someone based on a study with too small a sample to make any conclusions, a small business owners should not make any decisions about being positive or concerned, or investing in their business because a report by IOU which is also reported by media elsewhere suggest they conducted a "study."
IOU's report should be treated in the same way as opinion because it lacks the scientific method to make such assumptions as listed.
So What?
Every day, small business owners approach us because they have been persuaded by brokers, lenders, and merchant cash advance companies to take on debt for expansion or, as indicated in this report, to "invest" in their business. Our clients deserve better treatment from these entities.
We are not implying that IOU is an inadequate lender or a negative presence in the industry. Our firm's stance is that IOU does NOT intend for individuals to default on their financial products.
Nevertheless, small business owners are entitled to better treatment from brokers, lenders, and merchant cash advance companies looking to profit from their programs, products, or services.
This report serves as a clear illustration of either gross incompetence in conducting research or a negligent approach to presenting findings to individuals who trust a forward-thinking lender that claims to have issued $1.5 billion in loans.
We urge IOU to withdraw this report (as well as any previous reports) that exhibit significant research deficiencies, which my professor used to refer to as "bonehead research." Additionally, media platforms such as www.debanked.com should exercise caution in their reporting, as their coverage significantly impacts the industry and small business owners.
Beacon Client Solutions firmly believes that IOU is an exceptional lender, and we strongly advise them to continue their operations without making research claims based on what they purport to be survey research.
Contact Beacon Client Solutions to better understand your situation and how we can help you.
Dr. Thomas Tramaglini is the Director of Operations and Negotiation for Beacon Client Solutions, a company that supports small businesses on a host of fronts, especially MCA debt. Thomas has been a small business owner for many years, as well as held leadership positions in several organizations and companies. Thomas holds a B.A. in History, as well as Master’s and Doctorates in Organizational Leadership from Rutgers, The State University of New Jersey.
Disclaimer: Beacon Client Solutions is not an accountancy, or a law firm. We are business consultants. While Beacon works with outstanding attorneys and accountants, we cannot and do not provide legal or tax advice. All our work is connected to those who are legally certified to give such advice. Beacon does have a longstanding body of work in MCA resolution and understands what small business owners deal with, specific to MCA. Beacon Client Solutions serves clients in all 50 states, Puerto Rico, Mexico and Canada.
Comments