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# System prepended metadata

title: Small business loans

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# Small business loans

There are millions of very small/medium businesses (SMB) across developing world where getting small business loan is almost impossible without collateral or comes at a high cost (double digit interest rates). Even if they get high interest loan, if they continue to repay on time, their credit history doesn't necessarily increase. Lot of countries don't even have the concept of credit history. This hampers the small business growth.

I believe this problem can be solved by leveraging decentralized finance. 
1. We will evaluate the business, underwrite the loan and set an interest rate.
2. Publish the small business + owner profile with their public wallet address on chain so anyone in the world can see all that data on chain.
3. Anyone from anywhere in the world can fund the loan through crypto.
4. Crypto will be converted to fiat and transferred to SMB
5. SMB repayments or any transaction history will be in crypto, so automatically tracked on chain.
6. SMB can build credit history that will be accessible publicly for anyone to audit
7. If SMB builds a good credit history on chain, subsequent loans can potentially be borrowed at better rates.

Approach

1. Start with tight knit friends and family circle to test this at a small scale. It will be DAO where funds will be pooled that will service the loans.
2. Any DAO member can make a proposal asking DAO to fund a loan
3. All DAO members vote and if the vote passes, SMB will be funded
4. Publish everything on-chain so SMBs can start building reputation/credit score
5. If it works well, grow the circle and bring in more people in to the DAO.
6. Interest earned is proportionally distributed to DAO members.

Challenges
1. How do you best underwrite the loan? Who will do it at an extremely low cost compared to banks?
2. How do you minimize the default rate? What actions if any can be taken if someone defaults?
3. What are the legal and regularatory concerns?