Cutting-edge financial technology came as good news for everyone. From budgeting apps and online payment gateways to mobile wallets and stock-trading apps, fintech has made it possible for customers and businesses to accomplish almost every financial activity without setting foot in banks. That’s huge!
But where fintech really shines is how it’s made it easier for small business owners to access startup and growth capital. Gone are the days when you had to know angel investors, VCs, and the big names in the lending land. Crowdfunding platforms, P2P sites, and online lenders make it a breeze for business owners to access small business loans faster from the comfort of their premises.
What is fintech?
Fintech is short for Financial Technology. Generally, these are companies that use the internet and cutting-edge technology like Artificial Intelligence, Machine Learning, and Natural Language Processing to automate and offer better, faster financial services to individuals and businesses.
They have their operations entirely in the cloud, and you can access their services online from any location without the need to visit a physical location.
3 types of fintech that can help small businesses?
There are different types of fintech companies that help businesses accomplish almost anything. They include:
Lending companies
Online lenders top the list of fintech companies that have changed and simplified the way businesses access and apply for credit. You don’t have to leave your premises. Simply pick your smartphone and submit an online application.
They use an advanced software system and automated underwriting process to quickly assess borrower’s creditworthiness and suggest loan offers. Thus, they offer better, faster services than traditional lenders. Camino Financial is a good example of a fintech company in this category.
Payment gateways
Fintech companies in this category make it easier for businesses to make and accept payments through ultramodern payment methods without incurring exorbitant payment processing fees. Think of PayPal, Venmo, mobile wallets, Circle, and contactless payment, self-checkout counties, and more.
Businesses can send and receive payments without having to worry about banking hours. Traditional ways like checks, debit/credit cards, and the need for cash withdrawal are now taking the back seat!
Crowdfunding sites
Banks don’t fund business ideas, but physical, operating businesses. Fintech crowdfunding platforms have turned the tables. They help aspiring entrepreneurs raise seed capital to fund ground-breaking business ideas through reward-backed donations or by connecting vetted startups with accredited investors.
Other models simplify the funding process by allowing anyone to invest in startups through equity crowdfunding.
Differences between fintech and their traditional counterparts
There are key differences that set apart fintech lenders and traditional lenders when it comes to enabling entrepreneurs to access small business loans. They include:
The Qualifications criteria
Banks have strict qualifications that tend to be beyond the reach of many small business owners. They require an excellent credit score, long trading history, substantial business revenues, and collateral to back up the loan. Thus, they tend to reject loan applications from small business owners
Fintech lenders have less stringent requirements. You’re more likely to qualify for a loan from a fintech lender after being turned away by a bank. They welcome borrowers with a fair credit score or no credit history who have been into business only for a year or so. Unlike banks, they are more willing to use alternative data to lend to small businesses.
Application process
Most banks still use complicated loan application processes. They entangle small business owners with long, paper-laden, and bureaucratic applications processes. Apart from filling out a long application form, you still need to gather, prepare, print, scan, and copy financial documents, and then mail them to the bank or present them in person.
Fintech lenders automate everything, including the application process. You only need to fill a simple online application form and upload your financial documents without the need to print or copy anything.
Approval period
Most banks still rely on professional underwriters. The bank’s credit team has to analyze all your business documents to build a risk file and assess your creditworthiness. You may have to wait for weeks or months to know your fate, let alone getting approved.
Fintech lenders automate the underwriting process with advanced software systems that analyze borrower’s data and build a risk file within seconds. You’ll know where you stand immediately, or within 24 hours of submitting your application. Once you accept the loan offer, you can get funded within a day.
Why banks are closing doors for small businesses
According to Global Business Lending, small business owners have an 80% chance of getting turned away by banks. That’s frustrating! Top reasons why banks close their doors to small business owners include:
Poor or no credit history
Traditional lenders are averse to risk. They won’t start talking unless you can demonstrate a solid business/personal credit score of at least 680+, with low-interest rates reserved for those with excellent credit scores of 750 and above.
Short-trading history
If you’re new to the business, you’ve got very slim chances of getting a traditional bank loan. Most banks welcome borrowers who have been in business for at least 2 years.
Lack of profitability
Banks welcome businesses with substantial business revenues and steady cash flow. If your small business has cash flow problems and isn’t profitable yet, banks doubt your ability to pay back their money and close their doors on you.
Your business is deemed high risk
If your business vertical is deemed high-risk by lenders, you’re less likely to qualify for a loan. For instance, traditional lenders see the construction industry as high-risk and choose not to lend to business owners in that industry.
Lack of collateral
Banks will turn you away if you don’t have enough business assets to secure the loan. Many small business owners that are just getting started may not have many business assets in their name, and they end up being denied by banks.
Why are fintech easier to access
As you can see, banks aren’t favorable sources of small business loans for startups. Thanks to fintech companies. They are the exact opposite of banks.
Fintech lenders are easier to access because they offer financial services online. Thus, anyone with a smartphone and internet connection can use their services. They welcome borrowers with short trading history, fair credit score, and low business revenues.
Again, online lenders rarely require collateral and may be willing to use alternative data to offer small business loans to different borrowers, even those in high-risk industries. Also, fintech lenders have fewer overheads, and you may get better interest rates than what you get with regular credit cards.
The benefits of getting loans from fintech companies
Reputable and trustworthy fintech companies beat banks hands down with their simple application, pre-approval, and funding process. The top benefits of getting loans from fintech lenders include:
- Faster funding: Once you prequalify for a loan and accept the terms, you can have to get funded within 24 hours.
- Transparency: Online lenders offer business loan calculators so that you can determine your borrowing costs and monthly repayments upfront.
- Minimum requirements: Fintechs like caminofinancial.com require as little as $2,500 monthly revenues, only 9 months in business, and a credit score of 550+.
- Loan without collateral: Unlike banks, fintech lenders approve business loans without the need to risk personal or business assets.
- Get a loan without SSN: Some fintech companies offer ITIN loans to immigrant business owners without Social Security Number (SSN).
- Apply from anywhere: You don’t have to close your business. Simply submit an online application and get funded from the comfort of your premises.
Also Read:
- 8 Marketing Strategies for Tech Companies on a Budget
- 10 Tips For Safely Growing Your Small Business
- 5 Lessons From Fast-growing Tech, Energy, and Fintech Companies
