The Small Business Credit Survey (SBCS), a national collaboration of the 12 Federal Reserve Banks, delivers timely information on small business financing needs, decisions, and outcomes to policymakers, lenders, and service providers. The report findings provide an in-depth look at small business performance, debt holdings, and credit experiences, complementing national data on lending volumes and lender perceptions.
- A larger share of firms reported revenue growth (net 35%, up from 28%) and employment growth (net 23%, up from 19%) in 2018 compared to 2017, and 72% of firms expressed optimism for revenue growth in 2019—the same share as in the prior year.
- Financing shortfalls were particularly pronounced among firms with weak credit profiles, unprofitable firms, younger firms, and firms in urban areas. Funding gapswere most acute for firms seeking $100–$250K.
- Applications to online lenders continued to trend upward: 32% of applicants turned to online lenders in 2018, up from 24% in 2017, and 19% in 2016.The growth occurred despite lower applicant satisfaction with online lenders compared to satisfaction levels with large and small banks.
- Medium- and high-credit-risk applicants seeking loan or line of credit financing were as likely to apply to an online lender as to a large bank (54% and 50%, respectively), and more likely to apply to an online lender than to a small bank (41%), CDFI (5%), or credit union (12%). One in five medium- and high-risk applicants sought financing from other sources, including auto/equipment dealers, private investors, or government entities
Sergey Sedov, Founder & CEO of Robocash Group said:
“The financial crisis in 2008 became a starting point for fintech lending. With the tightening of requirements to borrowers among banks and their preference to work with larger amounts, alternative finance has come to the fore. Moreover, the most confident players have counted on comfortable service combined with quick transactions.
Now, we can even talk about a basic set of requirements for non-bank fintech lenders:
- automated scoring based on machine learning and artificial intelligence;
- reduced number of supporting documents facilitated by the use of big data;
- fast service accessible remotely through a smartphone.
Both in Europe and Asia, most customers are Millennials in the age of 25-34 years with a medium income level and high consumer activity. Mostly, they are private company employees or freelancers with an informal income. Lack of credit history or no access to nearby bank branches as in one-third of municipalities in the Philippines serves as an additional reason for the gap in access to banks. With growing penetration of the Internet and digital services, online fintech lending services have become an efficient financial tool for such customers.”
Priyanka Prakash lending and credit expert at Fundera said:
The popularity of fintech lending accelerated during the 2008 financial crisis. During that recession, banks raised credit standards and pulled back on lending, particularly to small business owners. Small business owners aren’t the most profitable customers for banks because a) they usually don’t ask for huge dollar loans (the average SBA loan is around $375,000 for some perspective), and b) small businesses have a high failure rate, which can cause loan default or slower repayment.
The gap left by the banks was filled in by fintech lenders and platforms. Fintech lenders focus on making it easy and fast to qualify for a loan. In many cases, a business owner can have funding in their bank account within 1-2 business days, whereas banks can take weeks. In addition, these lenders don’t have extremely stringent credit requirements. Rather, they focus on a business owner’s annual revenue and ability to pay back the loan. They also make small deductions from a business owner’s bank account on a daily or weekly basis to facilitate repayment. Fintech lenders are extremely helpful for business owners that need capital quickly and for business owners who’ve been rejected from banks as a result of credit standards. We have tons of customers who say they were rejected from every local bank until they went the fintech route.
Platforms like Fundera partner with dozens of fintech lenders, SBA lenders, and banks, offering the full spectrum of lending options. This allows small business owners to see, with a single application, what lenders they qualify for and which types of loans are the best fit for their business.
Fintechs can now extend loans to small businesses and consumers using new lending models with faster approvals. The success stories of fintechs in the loan cluster is because of numerous reasons. One of the reasons is peer-to-peer lending which is different from the traditional lending system used by banks. Typically, banks accept deposits from customers and then lend it to other customers as loans. Borrowers are charged more interest than is paid to savers. With peer-to-peer lending, individuals earn interest when they lend money to other individuals and also stand to gain from the brokering connection.
Fintechs are faster when it comes to loan application, and approval making the whole process cheaper and more convenient. By utilizing a vast number of data points, Fintechs are able to gauge how likely a person will repay the loan. Fintechs loans are readily available to all types of people, especially millennials who would rather see a dentist than visit the bank.