The last 30 years have ushered in an incredible array of technological advancements in all areas of everyday life. Innovations in digital technology have changed the way that we learn, interact, shop, date, play, work, and much more. Simply put, we are living in the digital age.
Over more recent years, developments in the area of financial technology have introduced a whole new way for business owners to apply for, obtain, and manage funding. This new landscape of fintech lending companies and fintech business loans has opened up a world of opportunities that small-to-medium businesses didn’t have access to just a few short years ago.
How do fintech loans work?
What is marketplace lending?
How are fintech lending companies different from traditional banks?
Here we’ll be covering these questions and more…
Applying for unsecured business loans: Online lenders vs traditional methods
While all of the ways that technology impacts our lives are astounding, they only leave such a profound impression on us when we compare society today to the way things were done prior to the digital age. Let’s take a look at how fintech lending compares to the history of loans and the way lending was done before financial technology burst onto the scene…
Ancient lending networks
- Extremely slow
- High risk for lenders
- Relatively poor systems for record-keeping
Thousands of years ago, surpluses of grains and livestock laid the foundation for the beginnings of what we refer to as lending. The essential nature of agriculture is that when you plant one seed, hundreds of more seeds are produced by the crop.
Instead of letting the grains spoil, people developed networks whereby X-amount of grains or livestock would be loaned with an expected repayment that would include an extra amount of grains or livestock in addition to the original amount loaned (what we now call interest). Ancient lenders typically did not offer unsecured business loans; rather, they required collateral in order to reduce the amount of risk they took on by lending.
Fun fact: The ancient Sumerian word for interest (“mas”) was the same as the word for a calf!
Traditional bank lending
- Advent of motorized transportation sped up the transaction process
- More advanced bureaucratic networks which reduced risk for lenders
- Paper trails became easier to maintain with printing press
Fast forward to a couple of hundred years ago (the 1800s), and we can see that the world of lending had become much more sophisticated than a couple of thousand years prior. A more recognizable form of currency had been well-established for a long time, and lending networks expanded to become interwoven with other industries like housing and the precious metal trade.
Railroads expedited the flow of money around the country, and the advent of commercial banking made it easier than ever before for everyday Americans to borrow capital and build a business. More specifically, the increased stability of industrial society also allowed for the establishment of the Philadelphia Savings Fund Society, which opened the door for average American entrepreneurs who were looking to get a loan or simply a way to save their money.
Still, the process of applying for a loan required filling out tons of paperwork and then waiting for weeks or even months to receive the funds.
Fun fact: While insider lending has a bad reputation by today’s standards, in the early half of the 19th century small private banks were able to maintain a great deal of stability by dealing with insider lending. Immoral as it was, it actually helped spur on the evolution of the financial sector in the United States.
Modern online lending
- No need to travel anywhere, applications done at the click of a mouse
- Algorithms match borrowers with the right lenders to minimize risk for all parties
- Borrowers can review their accounts on the go
- Lenders have quick and secure access to applicants’ financial info through encrypted networks
Look how far we’ve come – from lending cows and seeds to borrowing government-backed cash for entrepreneurship, up to the current day where financial dealings are largely done in the digital world with high-grade computing technology. Financial technology, also known as ‘fintech’, has revolutionized the reality of how business loans work.
The principles remain the same – funds are lent to a borrower with an expected repayment that includes an amount of interest added on top. But fintech loans don’t require filling out loads of forms, and then waiting weeks or months for a response, the way that traditional lending did (and still does!). While it is true that banks have begun adopting different forms of financial technology, the fact is that there are benefits of digital lending companies that banks don’t possess.
Fun fact: Lending Express uses advanced algorithms to quickly and accurately analyze a business’s financial profile. With such an efficient way to filter through and make sense of such large amounts of data, Lending Express is able to not only improve the chances of a business getting approved for funding, but also to connect businesses with the loan provider that is the optimal match.
How fintech improves the lending process
The ways in which fintech helps to make the lending process better are innumerable. Fintech lending is faster, easier, more accurate, and so on. But you’re likely still waiting for some solid examples of how financial technology has changed the way that businesses get their financing. Well, here you go!
5 ways that fintech loans are better:
- Making capital more available
- Online applications
- Connect your bank account
- Lending Express MatchScore™
Let’s dig a bit deeper into these 5 improvements that fintech makes to the lending process:
1. Making capital more available
It used to be the case that if businesses wanted to obtain financing from a lender, they would have to apply one-by-one to different lending institutions until they found the one that offered attractive enough terms and that actually approved them. That is still the case when it comes to traditional lending, but fintech lending has changed that.
Marketplace lending simplifies the process by allowing businesses to fill one application that is then sent to multiple loan providers. Beyond just making the process easier for the applicant, marketplace lending also opens up more opportunities for borrowers to find a lender that will fit their needs and approve them.
2. Online applications
Who wants to fill out a pile of forms in order to apply for a loan? Probably not you. Forget the killer hand cramp you’ll have by the end of it, we’re also supposed to be living green now! Fintech lending companies conveniently make it easier to complete the application and at the same time minimize their carbon footprint by offering a paperless application process.
Most importantly, the digital application allows information to be analyzed by advanced software programs, which significantly reduces the time it takes to assess the information provided and determine whether or not the applicant qualifies.
3. Connect your bank account
For any and every type of business financing, a loan provider will need to assess the business’s bank history. Through a traditional bank, the loan application process would require a business to provide physical records of its bank history (usually requiring records that go back at least 3-6 months). And since a business cannot always predict when it will need to apply for financing, those physical records would have to be kept indefinitely just in case they were needed.
Fintech business loans make full use of digital innovations by including a way for loan applicants to connect their bank account securely. Once again, financial technology not only makes the loan application process easier for fintech lenders, but also safer for borrowers, and healthier for the environment.
Fintech lending companies, such as Lending Express, make the process of analyzing a business’s financial profile faster, more accurate, and more helpful for the business. With advanced algorithms, Lending Express’s proprietary LendingScore™ technology allows for a wide variety of financial factors to be efficiently assessed so that businesses now have a clear picture of what they need to do to improve their funding chances.
That ‘clear picture’ is shown on the intuitive LendingScore™ dashboard, which displays the business’s LendingScore™ along with step-by-step tailored guidance on how to improve specific funding factors. As those factors are tweaked and improved by the borrower, the LendingScore™ increases along with the ability to qualify for more – and better – funding opportunities.
5. Lending Express MatchScore™
Where the LendingScore™ provides insight as to how a business can improve its fundability, the Lending Express MatchScore™ is used to achieve the optimal match between lender and business. By measuring and analyzing a wide variety of parameters, Lending Express offers a service that matches small-to-medium businesses with the lender(s) that best fit(s) their financial profile and needs.
The future is NOW
Financial technology is here to stay and will continue to change the lending landscape as the years progress. With excitement accumulating around anticipated fintech lending innovations, it’s crucial to stay up-to-date on what developments are being made. Keep up with advancements made in financial technology so that you can take the fullest advantage of the benefits offered by fintech business loans!
For more information on fintech lending feel free to browse through our extensive selection of blogs. If there were questions related to fintech loans, fintech lending companies, or marketplace lending that you feel were unanswered, leave us a comment below! We hope you find this article helpful – you can share it via social media or even bookmark it to view again later.