The tech-enabled lending revolution

It is no secret that FinTech companies are giving banks a run for their money when it comes to small business lending.  There is roughly $4.7 trillion at risk of disruption by  alternative lenders.

According to the US Small Business Administration, 28 million small businesses provide 55% of the jobs in America— these businesses need capital in order to grow. 

It can be devastating for a business owner to turn to their credit union during times of need only to be shut out.  It can be equally devastating to get stuck in a cycle-of-debt.

Small business owners  are making decisions at the speed of light and FinTech companies are waiting at the sidelines to offer assistance.  Yet, are these the best decisions for the businesses in-need?  Does this rapid funding environment that out-of-the-box underwriting provides give business owners enough time to think through the long-term effects of their financial decisions? 

With the high rate of failure working against small business owners they find themselves turning to convenience with almost every decision that they make.  

90% of small business owners are looking for loans <$100,000.  Yet most institutions still put small businesses through the same strenuous underwriting process as those seeking larger sums of capital.  The transformation of the lending landscape is showing that in today’s world, software-enabled, data-driven originators will lead the way.

The “game changers” in the industry deliver simple and quick accessibility of funds.  

The Issues?

  • High-Interest Rates:  Many small businesses struggle to understand the impact of these high-interest loans.  
  • Turnaround:  Lending in minutes is like a double-edged sword.  The quick turnaround sometimes does not give the business owners enough time to make an educated decision.  
  • Transparency:  There is not always full-transparency with FinTech loans.  Some lenders have hidden costs in the “fine print.” 
  • Double dipping:  Many alternative lenders encourage business owners to refinance, and use the money from the next advance or loan to pay off the outstanding balance, causing them to pay twice on the money.

With big banks partnering with FinTech companies to bridge their gaps with funding, small and regional financial institutions are going to get left behind if they don’t follow suit.  Just a short time ago, the industry standard was loan availability was days if not weeks or months, now we see FinTech companies funding in minutes.  

At the Eletronic Transactions Association FinTech Policy Conference in Washington, D.C. this September, Usman Ahmend of PayPal spoke about PayPal’s six minute app-to-funding process.  SIX MINUTES!  

As an ex-banker of a self-funded startup that happens to offer small business financing this statement hit me HARD in two ways.  

  1. Without a doubt, if I find myself in need of capital, I will turn to a FinTech source and not even waste my time going to my bank.
  2. I need to make sure that I that can compete in today’s environment with affordable rates, full-transparency, and  rapid turnaround time.

Survival Tips For Credit Unions In Today’s Environment

Growth in today’s ecosystem without strategic partnerships is nearly impossible.  It is critical to provide the tools and transparency businesses need to make informed borrowing decisions.  Small business is the back-bone of the American economy and we need to be there for them at the beginning and not just when we deem them bankable.  

Christina Camacho

Christina Camacho

Christina Camacho is the Founder and CEO of Ivy Lender. Christina spent her banking career working with SME businesses as well as Fortune 500 companies at the top Financial Institutions ... Web: Details

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