Fintechs give small business more choice for credit than just banks

Register now

It’s no secret working capital is the lifeblood of all small businesses. It’s the fuel that keeps them running, helps them grow and take on new opportunities.

And yet, so many small businesses struggle with cash flow. In fact, according to a recent study from Intuit QuickBooks, 61% of small businesses have had cash flow issues in the past year.

A very common step business owners take when experiencing a cash flow crunch is seeking external resources to help bring some quick capital in the door. Until very recently, many business owners marched straight to their bank to apply for a traditional business loan. While bank loans on the national or local level are a tried and true way of securing additional funds, they are no longer the only way of obtaining capital.
The small-business lending industry has evolved significantly, opening up a new world of possibilities for business owners, with alternative funding models popping up left and right in recent years. Lending has seen tremendous expansion, giving business owners seeking funding myriad new options. From leveraging social platforms to reach an extended digital network of family and friends to finding direct access to expert investors or getting help from corporate brands that want to fuel small-business success, there are more choices than ever before from online lenders, fintechs and payment technology firms.

As the world of small-business lending continues to grow and evolve, here are several examples of alternative funding options that are here to stay.

Crowdfunding may be a great option if you’re not in an immediate rush to raise funds and you have a large online network. Crowdfunding is a method of raising capital through the collective effort of family, friends, customers and other individual investors. Crowdfunding platforms typically leverage social media channels and crowdfunding-specific sites, such as Kickstarter or Indiegogo.

Gathering funds via crowdfunding can be expand your reach compared to the more traditional funding method of bank loans, and it can generate further excitement and buzz about a business along the way as an added bonus. Crowdfunding makes it easier for entrepreneurs to get in front of interested parties, allowing them to pool many small investments together to reach a fundraising goal instead of seeking out a large investment from a single source.

Peer-to-peer (P2P) lending is the practice of lending money to businesses or individuals via an online P2P website. Transactions are handled like an online buying transaction. A business owner would register on the site, request the amount they need along with the maximum amount of interest rate they want to pay, and potential lenders would bid on their loan. P2P is an attractive option for many business owners because it’s a straightforward process that allows business owners to control the amount of money they borrow and the amount of interest they pay.

While crowdfunding and P2P platforms are popular options for many, where I see the future of small-business lending really growing is with online lenders. Going the online lender route is a viable option for many business owners that are looking for affordable financing but require the funds faster than a bank is willing to provide it. According to the 2019 Small Business Credit Survey, applications to online lenders continued to trend upward: 32% of applicants turned to online lenders in 2018, up from 24% in 2017.

Online lenders leverage modern technology to determine financing and remove some of the friction from the process. Typically, online lenders are more flexible when it comes to payment terms and conditions, which is desirable for many borrowers. Lastly, small-business owners should consider online lenders that charge no fees, as this will help reduce additional costs in both the application and lending process.

With more and more players joining the lending industry, we know that it is indeed becoming a crowded space, leaving business owners weighing their options a bit overwhelmed. By considering the options outlined above and determining the best choice for their business, small-business owners will be empowered with more opportunities to receive the funding they need to grow, thrive and succeed.

For reprint and licensing requests for this article, click here.
Small business Fintech Lending Digital payments ISO and agent