I’m catching up on the mysteries of algorithms and small business credit. Here is a good and very recent panel discussion on the topic. A much more academic conference at NYU’s law school recently touched on related topics. You can find some of the papers by checking out the program.

Background. There are two schools of thought on the merits of algorithms or predictive analytics. One school of thought is excitement about the power and scalability of “objective” scoring based on data so, you know, rock and roll. The other school of thought is skepticism. How do we know we can trust these machine-driven beasts? We can’t see one or more of the following: 1) the training data used to inform the model used in the algorithm; 2) data against which the algorithms are applied (indeed we don’t know how the data are collected because of the degree of brokering among data publishers); 3) algorithm source code; 4) underlying logic expressed through source code that may not be obvious; 5) meaning of the outputs; and 6) statistically sound evidence of impact of the outputs.

What does it mean? We all are being profiled in a variety of ways using data we might not expect would be used to profile us. If that profiling takes place in the context of consumer credit decisions, the U.S. provides a measure of regulatory protection and recourse. If it takes place in the context of small business credit decisions, we mostly are left in the dark with no ability to understand much less contest. It’s a big issue because so many decisions rely on personal data and credit profiling as well as data about the small business.

At Lumenous we see this current reality as bad news and good news. The good news is there is a “green field” and therefore a very big opportunity to offer technology that fosters accountability, transparency, ethics, and fairness in small business credit.

We do that by following a very simple principle–put small business owners in charge of their credit profile. Give them (you) tools to collect data for your own credit profile that you may share with lenders, creditors, and others, on your terms.

It’s a hard set of problems to solve but we are weeks away from launching. Stay tuned and Happy Thanksgiving!

–The Founder