Although the business press pays more attention to global mega-corps, more than 99.5% of U.S. companies are SMBs.
SMBs are also responsible for the majority of new job openings.
However, SMBs continue to struggle with access to credit. Even as credit has loosened since the Global Financial Crisis, major U.S. banks still declined 3/4 of loan applications.
The gap left by the banks has created an opportunity for fintech startups to enter the SMB lending space.
Not only do fintech platforms provide more loans to SMBs, but they process applications and provide funds faster.
Doing so requires that fintechs construct easy-to-use platforms to collect the necessary information to helps them avoid making bad loans while streamlining the process for SMBs.
Here are our top 3 fintech startups that are changing how SMBs get access to capital.
Fundbox
Fundbox distinguishes itself among online lending platforms for its quick and easy application process.
It typically processes lending decisions in three minutes or less.
The process is straightforward:
The SMB gives Fundbox access to their bank accounts or accounting platform
Fundbox uses the data to calculate the business’s credit limit
And that’s all Fundbox needs.
But while the process is easy, that doesn’t mean Fundbox is right for everyone.
Fundbox makes loans against unpaid invoices, so startups and eCommerce companies may need a different provider.
Funding Circle
Funding Circle is a peer-to-peer lending platform that matches investors with small businesses.
According to its website, Funding Circles has helped arrange more than $8 billion in loans to over 50,000 small businesses across the globe.
Applications are completed in minutes and require little documentation, and Funding Circle makes decisions within a day.
Despite the quick and lightweight process, Funding Circle manages risk carefully.
Funding Circle generally provides loans to businesses that have operated for more than a few years.
Moreover, owners must provide a personal guarantee — putting their credit and assets on the line — while both machines and people review all loans.
Kabbage
Kabbage distinguishes itself in digital lending by offering loans to less-established businesses.
It began by lending to Etsy, Amazon, eBay, and Shopify merchants. It has expanded its business by providing loans through its automated system to companies that can’t get credit anywhere else — often in fifteen minutes or less.
Kabbage avoids bad loans by accounting for the owner’s credit score and dozens of data points, including growth and cash flow.
Kabbage’s lending algorithm learns from each loan, improving its decision-making over time.
Conclusion
As banks have hesitated to provide credit to SMBs after the Global Financial Crisis, fintechs have stepped in to give credit to small businesses hungry for capital.
By 2017, 24% of business loans made in the United States occurred through fintechs.
The growth of this sector has led banks to seek to re-enter the space, with Goldman Sachs and U.S. Bank launching digital lending products for SMBs.
But a more competitive loan market is only good news for SMBs — even if it makes the environment more difficult for the digital loan pioneers.