Technology influences and reshapes every aspect of our lives. It’s changed the way we pay bills, how we shop, how we dine, how we make a hotel reservation, and even how we hail a cab. It’s no longer surprising if it also affects how small business owners borrow money to fund growth and to fuel other projects for their businesses.
The advancement in financial technology did not only changed how many small business owners search for a loan, but it also altered how non-bank lenders and traditional banking process and approve them.
Besides changing the system, technology has also influenced other facets in the small business lending industry that raised the bar a notch higher when it comes to feasible lending options and stellar customer service. Take a read!
It Changes How Lenders Evaluate the Borrower’s Creditworthiness
Traditionally, banks rely on metrics like collateral and personal credit score to determine the creditworthiness of a small business.
Now, various technologies make it possible to check thousands of data points such as transactional data, flow analysis, and the public record to create a company’s financial health profile. This kind of information gives the lenders a better view of the financial position of a business. It also helps them decide whether to approve or deny a loan application.
This technology-driven model can be beneficial for many borrowers who might not be able to comply with the stringent requirements of banks and other traditional lenders. The lack of good credit score and sufficient collateral are likely to reject a loan application. Given the opportunity, small businesses with stellar bottom lines often become good borrowers.
It Simplified the Loan Application Process
Using data and financial technology together have successfully eradicated obscure paper documents that come with the traditional loan application process. The preferred system right now is an online application that’s easy and quick to complete.
But of course, it means lenders no longer make data-driven decisions. It only means that underwriters now bid goodbye to the time-consuming and manual process to welcome technology and automation. It helps them make faster decisions and access important data quicker.
It Helps Approve Loans Faster
Thanks to financial technology, small business owners can now apply and get approved for loans within hours, or sometimes, minutes. This benefit also extends to lenders as they can easily evaluate trends to identify what potential pitfalls to avoid which applicants can be better borrowers.
A quick loan process benefits borrowers because it allows the lenders to spend more time building relationships with borrowers with the likelihood to get approved.
A quick “no” is often as valuable as a quick “yes,” depending upon the borrower and the loan’s purpose. Also, streamlining the approval process allows the business owners to quickly react to capture additional profits and take advantage of growth opportunities. Further, this system also permits them to scour for other funding options right away, in case their loan applications get denied.
Nowadays, traditional and online lenders utilize electronic debiting to withdraw the set loan payments from the small business bank accounts of their customers. It also helps small business owners to stay updated with their loans, which is a vital aspect of establishing and building a strong business credit profile.
Good thing, both traditional and online lenders offer a broad range of periodic payment options which help spread the cash flow burden evenly for a month. This also wards off the lumpy cash requirement at the end of the month.
What’s more, keeping track with the payments helps the lenders and borrowers to recognize payment challenges sooner so they can accommodate and adjust for them.
It Connects Lenders and Borrowers
Before, small business owners only have one option when it comes to sourcing funds, and that is to work closely with their local banks.
The bank advertised on television, radio, or in newspapers and other print ads, then waited for interested business owners to visit, sit across the desk, and file a loan application. Also, local bankers knew that it would increase the chances of you turning to them when your business needed a loan once you used their other financial services.
This system didn’t really change that much over the last 50 years. And, even though these methods are still existing today, most small business owners now go after their lending partners online, which also includes online lenders and traditional lenders.
The internet technology makes it possible for small business owners to secure a loan from a lender who’s thousands of miles away. Additionally, business owners now have access to financing options that are designed to cater to their particular business needs. Such opportunities are usually not available at local banks or traditional lenders.
Further, the internet also makes it possible and easy for small business owners to research their best options. They can access case studies, read reviews, and learn about the lending experiences of other borrowers. Such information can help them decide if they’re going to work with one lender or look for alternatives.
It Helps the Borrowers and Lenders Stay Connected
Kudos to technology, it’s possible for small business owners to establish long-term relationships with their lenders and vice versa, which goes beyond the geographic distance. This relationship can even be more meaningful than your connection with a bank.
Even better, lenders can now build relationships with small business owners through newsletters, email, informative articles, and educational webinars that focus on their specific needs and interests.
Utilizing technology in this manner allows the lender to establish rapport and trust with small business clients. As a result, those small business owners might turn to that lender in case they need capital again.
Suffice to say, technological advancements in information processing have transformed the landscape of the lending industry in so many ways possible. You can apply for credit cards, home mortgages, and open bank accounts without stepping your foot in a bank branch. Most importantly, it opened many doors of opportunities for small business owners who want to grow and develop their enterprises but lack enough funding to do so.