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Fintech Is Influencing the Landscape for Small Business Lending


May 15, 2018 ( Newswire) The manner in which small business owners are interacting with debt is quickly shifting. Through the use of innovative technology and algorithms are changing the lending landscape. Today, this innovation has introduced new and better ways to determine the borrowing risk of any customer.

After the previous recession, most conventional financial institutions started to limit the amounts allocated to small business lending. This happened because the risk was higher than they would want to take. But as you know, nature abhors a vacuum. As such, alternative lenders have emerged with a keen focus to satisfy the credit needs of small businesses.

Loans revolution

Fintech has dramatically revolutionized how businesses interact with credit. In the past, it was within a bank's docket to provide loans. However, they have been characterized by high interest rates.

The incoming financial startups change all this by giving their clients an opportunity to borrow at a lower rate. All this is made possible by online platforms which mean that overhead costs are greatly reduced. As such, it becomes feasible to offer realistic loans and still make some profit out of the deal. Traditionally, this was almost impossible with banks due to high administrative fees.

Simplicity and speed

The technology has made it easy for business owners to access credit without having to go through tiring and devastating application process. Basically, you only need to make a simple and straightforward application in the comfort of your office. To make things better, it only takes a few moments to receive your feedback.

As a result, young startups can rely on instant credit to iron out their cash flow problems. Without these problems, businesses have higher chances to survive the infancy years.

The market share for traditional banks is dwindling

The rising demand for seamless loan application exists as a cohort to a ballooning demand for nonconventional loans from small businesses.

For a traditional bank, this is unattractive demand considering the high unit costs and complicated loan pricing. As a result, Fintech entrepreneurs are constantly designing and perfecting products and services that can satisfy this demand.

In the long run, traditional credit extended to small business by banks could get lower as better options are developed.

Collaboration between banks and Fintech startups is on the move

It's no secret that innovative Fintech companies have an advantage over traditional banks. As such, they are a real threat to established financial institutions.

While banks have been sluggish in realizing the important role that Fintech plays in the financial sector, they've started to embrace it. Specifically, the Distributed Ledger Technology can boost efficiency tremendously. Besides fostering transparency, it ensures the settlement time is shortened, and reconciliation is eliminated.

Nevertheless, the response is still not full blown and there are restraints among banks with regard to the money invested in the technology. In addition, there is a go slow on the integration of digital operations and traditional modes of operation.

Among the banks who have taken a deep adaptation of the digital integration, offering loans to small businesses is no longer an issue.

What does the future hold for Fintech?

From what is happening in this industry, it's evident that Fintech is making significant progress towards creating solutions that can eliminate friction in payments. Frictionless transactions, as well as banking, will, in turn, help small businesses have better cash flow.

At the same time, the blockchain technology is being used to integrate business record to creditors. When this happens, it will be easy for business owners to borrow higher amounts based on the pending payables. Besides, verifying this information will be quick since the creditor has access to the same information.

Final words

Considering the dwindling availability of credit services from traditional banks, startups can now access the much-needed capital from alternative lenders. All this has resulted from the emergence of Fintech startups that are committed to designing solutions that will offer small business owners more control and flexibility. This is in contrast to endless constraints that characterized conventional borrowing.

Since getting credit has become easier, startup owners have the opportunity to invest more time and energy in vital business tasks. As a result, the chances of the SMEs to survive are getting higher.

About Author - Walter Akolo, a Huffington Post Author who like to write about the current business affair. He has also been teaching to his students, how to write effectively for different businesses and help them to convert.

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