Known for consumer sweethearts like Apple and Facebook, Northern California is now tackling a less sexy though infinitely important task. Silicon Valley is bringing change to outdated financial systems through advanced financial technology (FinTech). A line of business based on using software to provide financial services, FinTech companies are generally startups founded to disrupt established financial systems that have been slow to embrace online technology. Examples include companies like Square, PayPal and Credit Karma. Traditional bank lending has been called “low hanging fruit’ for FinTech disruption, ripe for change with global FinTech investment set to more than double by 2018. Silicon Valley-based companies, like SmartBiz, are working to instigate much needed changes in small business bank lending.
The decline of small business bank lending.
One of the ways traditional banking has not helped Americans is by clamping down on small business lending after the economic crisis of 2008. Small businesses are truly the backbone of American economic strength, providing opportunities, bringing innovative products and services to the marketplace and creating jobs. For many small businesses, their success depends on access to credit and with most banks not lending to small businesses, many businesses have been forced to turn to expensive alternative options. When entrepreneurs don’t have access to low cost funds, small business growth can screech to a halt. The SmartBiz team knew there had to be a better way and worked to bring low, single digit rate SBA bank loans back to small businesses while transforming the traditionally slow and difficult application, underwriting and funding process.
Bank lending and technology.
If a small business owner is lucky enough to secure a single digit interest rate loan by going directly to a traditional bank, the process is likely lengthy and clunky. And many times, a business will go through a long application process with a bank just to be declined after several months of back and forth. FinTech companies, like SmartBiz, are increasing approval rates for SBA loans with an online marketplace and streamlining the bank lending process by incorporating online automation.
The increase in small business alternative lending.
As banks left small business lending in 2008, some alternative FinTech lenders stepped in to fill the void. These new entrants offer speed though with high rates and fees. Combined with short terms, such expensive funding can be disastrous and trap entrepreneurs in a debt spiral.