Laura O’Connor Hodgson, Now Co-Founder, joined Yahoo Finance Live to discuss the company's latest funding round and how it's helping small businesses get access to capital.

Video Transcript

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SEANA SMITH: Fintech startup Now, which helps small businesses deal with invoices also helps them grow. They just secured $29 million from a new credit facility. So let's talk about what this means for the company's future plans.

And for that, we want to bring in Lara O'Connor Hodgson, a co-founder of Now. Lara, it's good to see you. Just a few months ago, we spoke with your co-founder, Stacey Abrams as she was talking about the growth potential of this company, your plans here over the next couple of years. So now you have $29 million from a new credit facility what is this going to give you the chance to do?

LARA O'CONNOR HODGSON: Yeah, absolutely. So NowAccount exists to help small businesses get paid immediately so that they don't have to turn to risky loans and factoring. And with this new $29 million that we've secured in a combination of a credit facility and equity, we can now serve even more small businesses across the United States.

What we find is when a small business starts using NowAccount and they start getting paid in just a couple of days, it completely changes the way they do business. And it accelerates their growth. So in addition to serving more clients with this new capital, we'll be able to continue to scale and serve our existing clients as they grow exponentially.

ADAM SHAPIRO: When we had Now on previously, it was explained to us how this works, which is essentially it's about cash flow, you pay the invoice that the small business might have and it's through the partners, everyone's got to be part of Now but then the biller gets paid immediately, and the individual or the business that has to pay makes good for what you've shelled out but you give them the time to do it. So you need a lot of capital to help you get through that time period. How much more do you need to raise based on what you see is the trajectory of people signing up to do this?

LARA O'CONNOR HODGSON: Yeah, you know, it's interesting, it is about cash flow and people love to say cash is king but flow is queen, and we all know you can't win a chess match without the queen, without flow. So when we think about the capital behind NowAccount, It's very similar to the capital structure behind the credit card system, meaning the capital that we use day to day is the capital that we can give to that small business immediately. And the beautiful thing is that because it's not a loan and it's not factoring, it is their actual revenue, just like when they accept a credit card. So as our clients grow, we use that growing amount of capital to serve more clients and tackle their larger and larger invoices. Which is why we're so excited to partner with Brigade Capital Management because they bring the ability to scale with us as our clients grow.

And as we think about the amount of capital just to give you a wow, small businesses are in fact, the largest lender in the United States. Every year there's about $33 trillion of invoices that are sent out. And small businesses account for about a third of that. So you're talking about $11 trillion in transactions a year. So we are only scratching the surface in terms of leveling the playing field for these small businesses.

ADAM SHAPIRO: I don't want you to give away anything proprietary but we get on one side the crucial necessity for someone to be paid quickly. On the other side though, you bring up the credit model, and banks, for instance, have loan loss reserves. I'm sure you set aside a portion of capital to cover the unfortunate experience that the company that's paying doesn't perhaps, something happens that interferes with their ability to make payments to Now. What percentage of that? Is it the same as the financial institutions and credit card, banks that offer credit cards?

LARA O'CONNOR HODGSON: So in fact, it's interesting because you're correct in that for our business to succeed as we grow, it's managing scale and it's managing risk. What we have spent the first several years doing before we scaled is focusing on that risk, that credit enhancement model. And that's really where we filed our patents and our intellectual property is how we manage that risk.

But we've been able to do that in a way that our losses are much less than you would ever see in a lending environment because as you mentioned, the small business that's delivering the good or service, they need to get paid immediately. So that they can pay their employees and their suppliers. Employees like to be paid every two weeks, not net 60. But their customers, these large companies they really need that extended time to pay.

And so just like the credit card system did years ago for retailers, we allow the small business to get paid but we allow their customer to do nothing different. Their customer will pay when and how they always have. Just like when a consumer walks into a restaurant and they pay with a credit card, the restaurant gets paid immediately, even though that consumer is not going to pay their Visa bill until some point in the future.

SEANA SMITH: And, Lara, real quick, just give us a sense since you're in discussion with these small businesses all the time, how are they feeling right now at this point of the recovery? Because we've seen just in terms of the recent data that we've gotten, some of the confidence has been starting to slip a bit.

LARA O'CONNOR HODGSON: Yes. You know, I have the luckiest job on the planet because these small businesses they truly are the heroes of our economy. And I think it is no surprise to anyone that they bore an incredible portion of the burden of the pandemic that we've dealt with. What I would say is despite the fact that it's been difficult over the last several months, and I'll tell you, a net 30 invoice that on average paid in 55 days before COVID, was taking almost 70 days to pay. That's a whole payroll cycle that a small business could miss.

But what I am seeing is some optimism around the business opportunities that our clients are seeing. So customers that may have pulled back during the pandemic are starting to do business again. So they're starting to see those opportunities.

And to me, this is an incredible opportunity for small businesses to really drive innovation coming out of this crisis. And so I take that as an awesome opportunity, and an awesome responsibility quite frankly, to support them in their goal of taking on some of this opportunity. But it's a scary time out there and I think we have to acknowledge that.

SEANA SMITH: Lara O'Connor Hodgson, always great to speak with you. Co-founder of Now, we look forward to having you back on 'Yahoo Finance' soon.