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What is fintech lending? This is what business owners are looking out for

fintech lending
 

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What is fintech lending? Fintech, a combination of “finance” and technology,” is a modern approach to lending that uses financial technology to empower quicker and more accurate lending decisions.

Fintech lending also harnesses alternative sources of data, including the purchasing habits of applicants, to assess lending risks, as well as employs digital platforms to enhance the speed of data sharing.

With only 31% of small businesses receiving all the funding they sought in 2021, fintech is proving to be particularly useful in helping businesses gain access to capital.

“Fintech allows lenders to factor in many more data points to assess a business’s health, opening up access to capital for businesses that may have been declined through traditional financing sources, like banks. The digital aspect of fintech also makes funding more accessible to business owners in remote or rural areas,” said Credibly Founder Ryan Rosett.

In this blog post, we’ll cover how fintech lending works, how you can borrow money using fintech solutions, how fintech differs from traditional lenders, and how regulation is impacting fintech.

How does fintech lending work?

As we’ve already covered, fintech uses digital technology as a way to connect businesses with best-fit financing opportunities. Here’s a breakdown of how the digital lending process works.

  • Approval process

Unlike traditional banks that rely heavily on physical documentation and lengthy credit checks, fintech lenders utilize authorized digital data to make quick, accurate, and automated underwriting decisions, often in a matter of hours. This, in turn, empowers rapid remote credit decisions, broadening financial access to a wider range of customers, including those with thin credit files or unconventional financial histories.

  • Payments

Once approved, the disbursement of funds is also handled digitally. Fintech lenders typically use online banking transfers, e-commerce accounts, and mobile wallets to facilitate both the issuance of loans and the collection of payments. This digital approach cuts down on the time it takes for borrowers to receive funds, often making capital available within days or even hours.

For payments, borrowers can use the same digital channels, with many platforms incorporating an auto-debit feature to ensure timely payments. This simplifies the payment process for borrowers and helps lenders reduce default rates by automating the deduction of due amounts.

  • Customer Service

Customer service has become far more accessible with fintech. Many fintech lenders are now leveraging technology like live chat or even social media to help customers. And you can expect an omnichannel experience, too, meaning you can get the right answer faster.

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How can fintech help your business borrow?

It’s really simple: fintech lending is democratizing finance for small businesses. You’re better able to access the financing you need, when you need it. What’s more, lenders assess the strength of your business on a range of factors, instead of fixating on the balance sheet or credit rating.

1. Wider range of financing options

The key to growing –not owing– is getting the right financing option for your business. For instance, while a traditional loan may be more difficult to secure for a seasonal business, a merchant cash advance can offer the flexibility the business needs.

Invoice factoring, lines of credit, and equipment financing are other examples that align with small business needs. Instead of stifling your cash flow–and your growth–they allow you to borrow the right amount sustainably.

2. Lower eligibility requirements

Fintech lenders cast a wider net when determining your business’s ability to borrow. Whereas banks would often not look past a credit score or revenues, fintech lenders assess a range of financial signals.

They consider things such as work history, net income, and business performance to determine your eligibility for financing. That means a lower credit score doesn’t have to be an impediment to financing.

3. Easy access to customer service

Greeat customer service also differentiates fintech lenders from traditional banks. In addition to calling into customer service, you can also access support through live chat.

Many fintech lenders will also have an app or online self-service portal for their customers to access resources themselves. You can have effortless visibility into your financing, manage your transactions easily, and download past statements.

4. Quicker loan approval process

Receiving a loan approval from a big bank can take a week or more, assuming all your paperwork is in order. For an SBA loan, you’ll be waiting 30 to 90 days.

Fintech lenders speed up the process tremendously. You can pre-qualify in minutes and have funds deposited in your account as soon as the next business day.

How does a fintech lender differ from traditional options, like banks?

While fintech has reached a 64% global adoption rate, its rapid growth and popularity also underscores key differences and advantages fintech lenders provide over traditional banks. Here’s an overview of how fintech differs from traditional banks.

Advanced technologies

Unlike banks that often depend on outdated legacy systems, fintech companies harness the power of:

  • Cloud computing for scalable, flexible, and cost-efficient data management and improves customer access to services.
  • Machine learning to analyze vast amounts of data for better customer insights, risk assessment, and personalized financial solutions.
  • Big data refined financial strategies, understand market trends, and deliver highly tailored customer experiences.

Accessibility

The digital lending market is already demonstrating the demand for accessibility in the finance sector, with the market slated to grow 18.9% through 2028. In contrast, traditional banking institutions often have more stringent criteria based on credit ratings and financial history, primarily aimed at minimizing risk.

Fintech firms, on the other hand, are known for their more inclusive approach. Many fintech platforms provide services to those who are underserved by traditional banks, including individuals with poor credit histories or those new to business ownership.

Flexible requirements for collateral

Traditional banks typically maintain strict collateral requirements for loans, which can be a significant barrier for many potential borrowers. Fintech, in contrast, often employs more flexible and less stringent collateral requirements.

This flexibility makes it easier for individuals and small businesses to obtain financing, particularly for those who may not have substantial physical assets to offer as collateral.

 

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How does regulation impact fintech loans for SMBs?

The growth of fintech has also brought increased regulatory oversight, particularly concerning how these financial products are classified and how they must comply with existing financial laws—both federally and at the state level.

States like California and New York have taken significant steps in regulating commercial financing by fintechs, requiring these companies to provide consumer-like disclosures during the application process.

Such regulations aim to give business owners a clearer understanding of the financial products they are considering and an easier way to compare multiple financial offers, mirroring protections traditionally afforded to individual consumers.

What about federal-level oversight?

Fintechs offering commercial financing must navigate compliance with various regulations, including aspects of the Equal Credit Opportunity Act (ECOA) and its implementing Regulation B.

Government agencies currently overseeing regulation for fintech include:

  • Federal Trade Commission (FTC): Promotes competition and protects consumers from unfair or deceptive acts and practices in the marketplace.
  • Consumer Financial Protection Bureau (CFPB): Supervises and enforces compliance with federal consumer financial protection laws.
  • Office of Foreign Assets Control (OFAC): Administers U.S. sanctions programs with significant extraterritorial reach.
  • Commodity Futures Trading Commission (CFTC): Regulates the U.S. derivatives markets, including futures, options, and swaps.
  • Financial Industry Regulatory Authority (FINRA): Regulates brokerage firms and exchange markets.

With fintech changing the market, you might still be weighing the best option for funding. Should you go with a traditional bank? What does utilizing fintech look like for you? This is where we can help.

 

Ready to explore your financing options with Credibly?

At Credibly, we’re not just a fintech firm—we are your partner in growth.

We believe in providing small businesses like yours with not only the capital they need but also the respect and personal attention you deserve.

Whether you need funding in as fast as 24 hours or are looking for a reliable advisor to help you navigate your financial journey, Credibly is here to support you every step of the way.

Speak with a financing expert today.

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