Small business financing is one of those things you thought would never change. Banks and credit companies are one of the most archaic type of companies you’ll ever encounter. These financial facilities were dominating 100% of a multi million business, which is only growing bigger as years go by.
These sleeping giants are now waking up to the sound of alarming bells. Progress, and in this case technology, is showing a real potential to turn this industry around for good.
The idea of technological finance is getting real quicker than anyone has anticipated. In 2016, some banks are supposed to move some of their systems so they would become based on the blockchain concept, the same concept which was considered ludicrous just a few years ago when the bitcoin was firstly introduced. Such changes are bound to change the financial game forever.
SME funding is also evolving, and a lot of people are eagerly anticipating that. Alternative financing can provide additional possibilities for small business owners, and pose a great investment opportunity (either as stock or directly in the platform if it’s Peer to Peer). The Zero Sum Game law, though, dictates that if there’s a winner there must be a loser. Traditional institutes will be on the losing end, unless they harness technology in their favor and jump on the wagon.
How will “modern business lending” should look like in the forthcoming years?
Old Processes Modernized
Traditional means of borrowing money, such as invoice factoring, will exist in a new format. Instead of having to provide excessive documentation and without any real clarity on what you’ll be paying, startup companies like iWoca will be able to provide ultra-prompt approval, and be much clearer than traditional lenders in regards to the terms of the loan (read iWoca’s review on BussinessLoanCompanies.com).
Will the interest rate be any lower in such cases of invoice factoring, or very “standard” B2B short-term loans? It’s hard to say, but the process will be much smoother for certain.
Less Dependency On Credit Scores
Via machine learning, new business lending firms are able to calculate a dynamic “health” score for each business applying for a loan within minutes, hours or days. This health score can depend on Credit Score, but not entirely, which gives hope to bad credit businesses who are longing for funding (source: Capstone).
Increased Competition
The SME lending market which has been widely neglected, and even decreased in size after 2008’s financial crisis, is now showing a lot of promise. Lending Club, the USA lender, was 2014’s second largest IPO in the world, second only to Alibaba.
As additional companies decide to chime in this industry, interest rates on loans will become increasingly lower. In conjunction with improved technology to better predict defaulted borrowers enabling the risk premium will be lower, of course.
It’s difficult to say what future lies ahead, but seemingly alternative business funding will play a huge role in the lucrative world of small business financing, and will make things easier and cheaper for business owners.
