More and more small business owners are turning to online lending – why? In part, because they’re frustrated with the traditionally low loan approval rates at big banks. Not to mention, various advancements in financial technology (fintech) are changing the way we lend money and facilitating the growth of online lending.
We pulled together some of the most significant advancements and what they mean for you, the small business owner.
1. Speeding Up the Process
Processing a traditional loan is a time-consuming process – between paper applications, lengthy reviews, complicated underwriting steps, and slow funding. While the process can be lengthy for consumer loans, it's even more time consuming for business borrowers who have to submit detailed business plans, profit-and-loss statements, balance sheets, asset lists, and other documents to prove their creditworthiness.
The process is stifling in many cases, and positively burdensome when business owners need funds quickly.
By refining every step of the lending process and automating many of its elements, fintech companies have sped up the lending process… by a lot. Now, applications are submitted in minutes, loans reviewed in seconds, and funding provided almost immediately.
That means you can turn to online lending if you don’t have the patience to wait for a traditional small business loan, or if you need working capital ASAP.
2. More Loan Products to Choose From
Fintech companies offer a range of products. That means you aren’t restricted to one or two loan options when you apply online.
Some of these products are more traditional, like installment loans and lines of credit – others forge new paths into inventory-backed loans, factoring loans, loans secured by future credit card payments, and many other funding options. That means you can find the loan tailored to your unique needs, including innovative options for collateral.
3. New & Varied Lending Models
In order to offer loans to more people, many fintech companies have created modified lending models.
In some cases, peers are matched together to loan each other money. Under this model, prospective borrowers create online profiles with the kind of information included in a business plan. Investors review the plans and offer loans based on profiles that appeal to them.
If your plan attracts multiple investors, you have the opportunity to choose between different rates and terms to find the arrangement that works for you.
In other cases, lenders secure loans based on future credit card payments or on projected revenues. This allows lenders to safely offer more loans without worrying about clients defaulting. Some companies also offer revolving lines of credit – to minimize default, they reassess the lender each month and adjust the credit line as needed.
These new and unique lending models make capital available to a wider variety of business owners – that might include you.
4. Intelligent Use of Data
Fintech companies have also found new ways to assess applicants. In fact, data harnessing is one of the most important fintech advancements.
Data provides lenders with a complex, detailed, and dynamic image of applicants – this gives the lender a more comprehensive view from which to determine the risk associated with lending to a particular business.
For example, imagine a new business owner who has just finished college and doesn't have any credit history. While going to college, he created a business with $50,000 in annual revenue. Traditional lenders are likely to see his empty credit report and deny his loan application.
Fintech companies approach the process differently. They look at the applicant's bank account, credit card processing trails, revenue records, online reviews, business social media accounts, etc., and use that information to decide whether or not your fledgling business merits working capital.
5. Competitive Interest Rates
Because of the detailed and innovative data at their fingertips, fintech companies have relatively low rates of default, which makes it easy to attract underwriters. As a result of the healthy competition that breeds, interest rates for online loans are competitive.
In most cases, these loans have lower effective interest rates than credit cards, and their repayment plans are structured in ways that actually promote repayment.
6. Higher Approval Rates
Perhaps the most significant development in online lending is higher approval rates. Advancements within the industry have led to this notable shift in lending – it’s been made faster, safer, and easier to lend money. Most importantly, there are more effective ways to assess risk and efficiently involve underwriters.
That means fintech companies boast higher approval rates than traditional loans options, so you can be confident that your business will find the financing you need.
Online Lending – Making Life Easier for Small Business Owners
Online lending promises to continue growing as more and more fintech companies identify steps to reduce risk while increasing approvals. The industry continues to advance traditional attitudes toward money and technology, making it easier for younger borrowers and newer business owners to get funded.
As interest rates become increasingly competitive, there’s a good chance the best loan for your business won’t come from a brick & mortar, big-name bank.
