How Fintech Advances Are Creating New Opportunities for Micro-Businesses
Fintech companies are filling in the gaps in SMB finance that the banks left wide open.
I've been a small-business owner for over 30 years. When I started my small accounting firm in 1984, I had three clients. And, in the years since, I've had my ups and downs. I remember one Monday morning walking into my local bank trying to get a $25,000 loan; I'd just landed a major client and needed the cash to make payroll.
But, after spending over three hours with the bank owner, I came home empty-handed and had the same result with each of the four different banks I tried, even though I had my financials in order. To raise the cash, I ended up selling my truck along with my stamp collection -- in a fire sale. (Yes, I had a stamp collection!)
Nowadays, things are significantly different for business owners, and fintech can take some of the credit.
Clearly, this category is no passing fad but rather a game-changer for micro- and small- and medium-sized businesses (SMBs). While these businesses previously struggled due to the lack of support from traditional banks, they've found affordable solutions from fintech.
Those solutions benefit business owners, ranging from freelancers, to founders of startups, to leaders of burgeoning small businesses and other enterprises.
How I wish we'd all had this years ago.
A range of fintech product and service solutions
As the Financial Times reported, this support from fintech companies comes in the form of lending, advice, foreign exchange and various financial products and services. A recent BI Intelligence research report reached similar conclusions. For example, the BI report said, unlike traditional financial service providers that focus on large corporations, fintech companies have carved out increased revenues by filling in gaps in credit, bank accounts and digital business services for SMBs.
A World Economic Forum report gave this trend even more credit, portraying it as a global paradigm shift in which fintech companies are enabling entrepreneurs in developing countries to join in the global business environment. This is due in large part, the report said, to such solutions from these companies as peer-to-peer lending, merchant and ecommerce finance, invoice financing, supply chain financing and trade financing.
As a result, small businesses are gaining market share in the online and offline business environment, and attracting consumer and business targets that appreciate their personal service and unique offerings while still benefiting from secure transactions.
Here are some of the fintech advances helping SMBs.
Lending is one of the most critical areas where fintech has filled a gap for small businesses. As smaller businesses often don’t need a considerable amount of money when they seek loans, they’ve struggled to get any financial assistance. That’s because banks and other lending institutions often don’t see any profit in providing loans of less than $100,000.
Typically, a bank also demands collateral that a small-business owner doesn’t have. Both factors created a space that fintech companies could fill by offering what are termed “microloans,” which the Small Business Administration defines as loans of up to $50,000.
An example of a fintech company offering such loans is Kabbage, which provides a way to tap into this type of credit in just a few minutes through a mobile app. Fintech companies like Kabbage offer unmatched speed and convenience; plus, their overall lending requirements (e.g., credit score levels) are less restrictive than banks', and their interest rates, lower.
I personally tried them out and was instantly approved for $25,000. Business owners don't get how far along we've come and what they have available to them instantly: The money was in my account the next day.
Another online lending platform, LendGenius, allows small business owners to compare financing options without having to fill out reams of paperwork. Instead, you log in and receive a list of the lenders that best match your business needs. You complete just one simple application, even if you apply to multiple loan sources. And the platform gives you fast approval and funding -- sometimes in just 24 hours.
Expense tracking and invoicing
In order to make money, small-business owners must get paid and monitor their expenses. That’s when they could use a small-business accounting process that is affordable and addresses their unique needs.
Enter Sage, a fintech company that offers Sage Expenses & Invoices, an expense-tracking and invoicing app just for smaller-sized businesses. This free app provides an integrated accounting, payment and payroll solution that simplifies the accounting process and reduces the time spent on these necessary aspects of a business.
Nor does the business owner need IT skills or accounting knowledge to get the most out of this fintech app. Other accounting software assumes a business owner understands accounting jargon, but Sage Invoices & Expenses uses ordinary language -- like “Money In” and “Money Out” -- that anyone can understand.
Receipts can be captured with the click of a smartphone and be stored within the app, enabling access to them for various needs. In addition, invoicing can be taken care of on the go, and overdue invoices generate an automatic reminder. On top of making life easier for the small-business owner, a fintech invoicing solution like this one improves the customer experience and offers new insight into the state of business finances.
More cool fintech tools for small business
There are innovative and disruptive fintech companies emerging each year to offer even more direct assistance to small businesses. For example, Domuso is a unique payment service for rental property owners that leverages full-stack rental-payment technology.
Landlords can use the fintech platform to accept risk-free payments online through a credit card, debit card or automated clearing house transfer, and residents can use the platform to make rent payments online or through their smartphones. Domuso also offers installment loans, which residents can pay back over six to 12 months, while landlords still get paid up-front. Such loans can cover security deposits and other move-in costs, helping landlords attract more tenants.