Running a successful business nearly always requires spending money. Thus, entrepreneurs have traditionally sought loans from banks or similar financial institutions when in need of capital.
However, banks are sometimes reluctant to loan money to people who may not have a strong credit history. In fact, according to one recent survey, entrepreneurs seeking loans from major banks are approved less than 20% of the time. While smaller banks are somewhat more willing to approve business loans, there are still plenty of deserving business owners who, due to certain factors, aren’t able to access the money they need to expand.
Fintech has helped to address this issue. Fintech-based lending platforms are often more likely than traditional firms to approve loans. They have access to more data about applicants. This helps them to make more informed decisions than banks can. While a person may have a limited credit history due to their status as, for instance, a new citizen, a fintech lender can review other relevant information to find out if they qualify for a loan.
That’s why fintech-based lenders may represent a viable option for business owners who seek funding. Of course, it’s always important for any entrepreneur to be honest and realistic when considering if they should take out a loan to achieve their goals.
If, for any reason a business owner is struggling to qualify for a loan from a bank or traditional financial institution, a fintech company might be a good alternative. The following points will help you to better understand why.
This blog has often pointed out that fintech companies have helped unbanked and underbanked people to access financial services that were previously unavailable to them. This often occurs because people who live in remote areas of the world simply cannot reach banks to take advantage of their services. However, as long as they have Internet access, they can use fintech products instead.
The same principle applies to business lending. The process of acquiring a loan from a bank tends to involve visiting a branch in-person multiple times. This is obviously not possible for some would-be business owners. It’s also not an issue when they work with fintech lenders, where the entire process occurs online or via an app.
This may even help developing and emerging markets flourish. When people in such regions have greater access to startup capital, they have more opportunities to start and grow businesses, allowing them to provide others in their area with employment opportunities. This can stimulate economies in the long run.
Even if an aspiring business owner can reach a bank, they may not be able to obtain a loan due to the complex and tedious nature of the application process. They must often coordinate with banks over a relatively long period of time before their loan is approved. Due to everything from a busy lifestyle to limited travel options, this can put major roadblocks in between small business owners and the funds that they need.
Fortunately, fintech solutions typically involve providing efficient and streamlined alternatives to traditional financial services. This is as true for fintech lenders as it is for any other type of fintech company. By offering applicants digital, easy-to-access platforms, they greatly simplify the process of applying for a business loan. As a result, business owners who need funds sooner rather than later are more likely to successfully qualify for a loan in a timely manner.
Translating Financial Information
Again, the lack of a credit history is a major reason why people aren’t approved for business loans. This is a particularly true for immigrants. Individuals who are new to a country don’t have the financial history within its borders to prove that they are financially responsible.
That’s why fintech startups are working to create “passports” that translate the financial information immigrants have in their home countries in ways that fintech lending firms can evaluate.
This not only make it easier for immigrants to start businesses in their new homes. In many countries, having a strong credit history is key to buying a house, getting approval for an apartment, and more. Fintech startups in general help newcomers to financially adjust to a new country more quickly than they would have if they relied solely on traditional methods to build their credit history. The result may be a new generation of entrepreneurs who are eager and able to contribute to the economies of the countries to which they immigrate.