How Does Fintech Expand Small Business Owners’ Financing Options?
Small business owners encounter several challenges in their day-to-day activities and managing their financial operations is among them. Specifically, they have to keep up with meeting payroll, developing new products, implementing marketing strategies, and expanding facilities, all of which require access to financing.
The problem is, it can be quite hard for small businesses to get external funds since most traditional lenders are reluctant to invest in them. Because, unlike large companies, they don’t have the equity and resources to compete in the market. But thanks to the emergence of fintech or financial technology in the last decade. With fintech developments, small businesses have more opportunities to scale up and thrive by making financing from lenders more available to them.
Trustworthy lenders can help you with this matter. To further understand its impact, find out below how it expands the financing options of small business owners.
Develop New Approaches For Credit Analysis
Most conventional lenders like banks and credit unions heavily rely on the old credit scoring system when making lending decisions. As a result, small businesses with a limited or no credit history find it too difficult to get loan approval. But fintech has made it possible to expand credit availability by developing new approaches in assessing creditworthiness.
Through machine learning technologies, lenders have a pool of data to support their decision-making. Factors like financial situation, spending habits, and professional background are analysed by the machine to come up with the applicant’s behavioural profile. This gives small business owners more chances to prove their creditworthiness towards the lender.
Simplify Loan Application Process
Small businesses are often viewed by banks and credit unions as risky borrowers. It’s one of the main reasons why they usually require multiple in-person interactions before approving their loan. Plus most of them used manual and paper-based loan approval that normally takes several weeks and even months.
On most occasions, such a lengthy process results in a low approval percentage for small business loan applications. Fortunately, fintech provides easy-to-use online applications, allowing small business owners to apply for loans at their convenience and get faster approval. With rapid loan underwriting, small businesses can navigate and understand their financing options much better.
Provide Credit Directly
Drawn-out application processes and high fees have held back many small businesses from securing short-term loans. Such limitations are impacting the cash flow of thousands of companies. But the need of small business owners to access fast credit is largely recognised by fintech.
With fintech’s advanced loan origination software, online lenders that offer quick cash loans, bad credit payday loans, emergency loans, etc. don't only improve their credit assessments but the process of their loan disbursal as well. They can already provide loans to small business owners using direct money transfers and enforce repayment terms through an online platform.
Create Alternative Forms Of Financing
The fintech industry has undoubtedly provided multiple ways for small business owners to grow and expand. With better automation, speed, precision, and the possibility of lower interest rates, it brings various lending solutions to small businesses and even startups. Below are some alternative forms of financing they have created.
Peer-To-Peer (P2P) Lending
P2P lending is a painless way to get financing with quick disbursals and easy repayment methods. Through automated algorithm-based pricing and underwriting, P2P lending platforms screen all types of borrowers more accurately and match them with the most suitable lender. So even with shorter credit histories and lower scores, small businesses can secure financing.
With accrued late payments, the working capital of small businesses might take a hit. But fintech has made a way to invoice financing technologies to help increase the liquidity of companies suffering from late-payment problems. With a web-based portal, small business owners can get advances from an invoice finance company. They can upload their invoices in real-time and have the amount deposited in their bank account.
Merchant Cash Advance
Small businesses can also get an advanced lump sum of money based on their future credit card sales. They can repay the advance by taking a fixed percentage of those sales until the whole amount is paid back in full. With fintech streamlining the process of credit assessments and setting up dynamic repayment schedules, small businesses can keep their margins and profits still intact.
With fintech innovation, multiple crowdfunding platforms allow entrepreneurs to fund their small businesses through a variety of people who want to get involved with their business campaigns. Depending on the type of crowdfunding, small businesses may have to repay the fund or compensate in the form of equity. But besides raising funds, the best part about crowdfunding platforms is giving entrepreneurs opportunities to reach out to potential customers.
Leverage Fintech Innovation To Grow Your Business
Fintech development doesn’t solely make outside financing more accessible to small businesses. It can also help you manage all your financial needs and transactions more efficiently from online lending to accounting and invoicing. You can have an edge over your competitors by leveraging fintech innovation in your daily business transactions and operations.