Financial technology, often shortened to fintech, describes an array of computer technologies that have revolutionized the financial sector. Certainly, traditional banks and financial companies have also benefited from advances in tech. New computer and communication systems may allow these older companies to operate more efficiently. Still, fintech mostly refers to innovations that have given rise to new business models that have changed the way that many small businesses and consumers conduct financial business.
3 Ways Fintech Makes It Faster and Easier to Fund Small Business
Some traditional institutions have begun to embrace these new solutions, but new companies that base their business around tech solutions have disrupted the market and made many financial services more accessible to small companies and individuals. It’s interesting to explore how fintech makes it easier to access small business funding.
- Financial Tech Makes Loan Applications Convenient and Confidential
Small business owners may hesitate before applying for traditional loans for many reasons. They know that typical lenders need documentation about a company’s credit, equity, and overall financial situation. Scheduling an appointment with a local loan officer might seem inconvenient, imprudent, or even pointless.
The owner may not want to divulge every aspect of a business to a local bank officer for a variety of reasons:
- Some small business owners may prefer to protect their privacy and not divulge every aspect of their company’s operations to a local bank employee.
- In other cases, he or she might just not have time to gather necessary documentation.
- Some savvy business owners may already know that the chances that their own company can qualify for traditional financing are slim.
Tech-based lenders offer quick and confidential applications. The tech solution does the heavy lifting of pulling in data about the company, so the business owner doesn’t have to. Even better, many applicants can enjoy an approval within minutes of completing their online application. They can provide information and learn about their approval from the privacy of their office or home computer.
- Fintech Lenders Can Fund Rapidly and Flexibly
After the online lender approves an application, automated solutions can help move funding from the lender to the borrower very rapidly. Instead of taking weeks, the entire process from application to funding can occur within a few days. Online lenders can work efficiently, so they are also likely to approve smaller loans. These days, many banks only want to make loans in excess of $250,000 and would rather not deal with small loan amounts.
Borrowers aren’t locked into taking a fixed loan when they use online lending platforms. Online lines of credit don’t just make it possible for borrowers to access funds quickly. They also offer additional flexibility and peace of mind. Borrowers may just request the money that they need immediately and leave the rest of their credit limit in reserve.
Lenders only charge for the amount of funds the borrower actually takes. Meanwhile, borrowers reserve the right to access more funds if they need them later, all without having to repeat the application process. Very often, it only takes a day for additional funds to move from the lender to the borrower.
- Online Lenders Can Qualify Small Businesses in Alternative Ways
Traditional lenders rely heavily upon either personal or business credit scores. It’s very common for founders to fund startups from their own savings or personal credit lines. In this case, their company may never have established true business credit. However, fintech lenders have developed alternative ways to take a snapshot of a company’s true legitimacy.
Rather than using a personal or business credit score, they may use some or all of these kinds of information to verify a company’s business activity:
- Payment processors
- Online retail websites
- Business checking accounts
- Bookkeeping software
- Social platforms
Typically, applicants simply link one or more of these online information sources in order to proceed. That ability gives some companies a chance to prove that they earn revenue and operate a good business even when they don’t have established credit. It also saves business owners from having to spend time gathering documentation.
When to Consider Tech-Based, Online Lenders for Small Business
Small businesses with established credit, fixed funding needs, and no sense of urgency may decide that a traditional lender can offer them what they need. These companies might shop around for the lowest rates, most generous repayment terms, and loans that truly fit their business needs. Even though fintech makes it easier for some companies to obtain financing, online lenders might not offer the best solution for every business.
Business owners who either don’t have excellent or established credit might turn to a tech-based lender to provide them with alternative solution. Online lending companies may approve and fund loans very rapidly. In addition, they have more flexible solutions both for financing and for approvals. It’s up to each business owner to determine which funding source offers them the best solution for their own unique type of business.