People use the term “fintech” in a very broad way, but this term generally just refers to any application of technology in the financial industry. Advancements in this technology can help make financial companies more efficient and more accessible to their customers. In this way, fintech has opened up more options for small businesses that need to borrow funds in order to manage cash flow or grow.
3 Examples of Fintech Solutions That Improve Small Business Lending Practices
In order to understand the impact and future potential of fintech, consider these examples that are already helping to improve small business lending:
1. Small Business Have More Alternative Sources of Funding
A few years ago, small businesses generally got their startup funding from the owner’s own assets or credit. In some cases, a lucky businessperson might have convinced an investor to contribute; however, that usually meant giving up some control of the company.
Many businesses were therefore doomed to fail or stagnate because of this lack of sufficient funds to operate their business. It takes some time for most businesses to sustain themselves with their own profits because startup costs may be high and initial revenues may be fairly low. It’s still true that most new companies depend upon the owner’s resources to some extent.
These days, a number of online lending platforms have emerged with the goal of helping new and small companies access the funding they need to grow their business. Since these lenders don’t only rely upon traditional credit scores, they give business owners a chance to prove their worth through other data points. Online applications, fast approvals, and quick funding methods also help small businesses get the money they need in an efficient and effective manner.
2. Small Businesses Have Different Ways to Borrow Money
Fintech didn’t just enable the emergence of different kinds of lenders; it also allowed those lenders to offer a variety of funding options. Since there is a larger amount of financing, lenders are able to suit the needs of more small business. Typically, banks are more interested in offering large, long-term loans to established companies. The banks overhead may make it preferable for them to depend upon a few large loans instead of many smaller ones. For those companies who would benefit from smaller loans with more flexible terms, fintech can be exactly what they need.
For example, many small companies can benefit from a line of credit. This type of funding could be compared to a credit card, but it has some major differences. Like a business credit card, the borrower can just access the amount of funding that they need at the time that they need it. They also don’t have to pay any fees or interest on money they do not withdraw from the loan. One advantage of a line of credit, and difference from a credit card, is that cash can be taken out and deposited directly to a business bank account. A line of credit is therefore not just a way to make purchases. Some credit cards allow cash advances, but these are usually expensive and have low limits.
Another benefit involved with lines of credit is that they can be larger than the overall borrowing limits imposed by credit card companies on many customers. Further, with lines of credit, withdrawals are processed very fast and might be available to spend in as little as one day. Benefits such as these make lines of credit a great option for businesses looking to have ongoing access to small business lending.
3. Lenders Operate More Efficiently
Financial technology lets lenders operate more efficiently. A lot of the heavy lifting happens online through the fintech system. This speeds up the process, requires fewer people to process transactions, and also lets fintech companies keep their operating expenses low. Because of this, fintech isn’t just used by the new wave of emerging companies; it has also been adopted by many banks and other traditional financial companies.
Efficiency doesn’t just benefit the lender. These companies operate in a competitive business climate, so they are eager to pass part of their advantage along to business clients and consumers. Business borrowers can enjoy more competitive lending rates and fees, faster answers, and easier applications. Of course, these borrowers also get the luxury of having more options when it is time to borrow money.
Small Business and Fintech Lenders in the Future
Small and startup businesses may find their perfect partner when they utilize lenders that use technology to become faster, more accessible, and cheaper. The advantages are likely to become more pronounced as this new technology matures and becomes more accepted. For example, artificial intelligence platforms can help provide the lenders with better decision support, so loans might be accessed by a variety of different kinds of companies.
It might not be fair to judge a restaurant, eCommerce website, and manufacturer by the same measure. Online lending platforms therefore use all sorts of information to figure out if an applicant should qualify for business funding. These sources of data can include bank accounts, payment processing providers, and even social networks. Certainly, most businesses hope to improve their traditional measures of success. However, companies that have not had the time or chance to improve their business credit or owner’s stake can still find the right lenders and kinds of loans to help their businesses grow and thrive.
