The days of having to go into the bank for every transaction you want to make are long gone, and now the era of the fintech is taking its place and continuing to grow.
According to the SmarterLoans State of Fintech Lending in Canada 2020 report. In 2020, when it comes to getting approval, 42% indicated that it was fast and easy, compared with only 39% in 2019 and 33% in 2018.
This year for the first time the majority (51%) of applicants received funds the same day they applied. Last year 48% received their loan the day they applied, and only 43% in 2018. Overall, 87% of borrowers received funds within 3 days, up slightly from 86% last year, and 82% in 2018.
So why does this matter and why are business owners turning away from traditional financial institutions?
Its simple people need cash quick and efficiently, which is something traditional sources of financing can’t offer. Below is a more in-depth look into why the consumer has turned to online small business lenders.
Most lenders can process loans in 1-3 days. For repeat customers many can approve funding the same day. Traditional lenders typically take up to 2 months to process loans.
Small businesses are very nimble and need to be quick to respond to opportunities. For example if a retailer has an opportunity to purchase inventory from a supplier at short notice, an on line lender can provide the funds needed to take advantage of “special” supplier discounts. A bank wouldn’t be able to help in this situation due to the time required to prepare all the required documents.
Online lenders allow the client to do business from their home, office or smart phone. There’s no need to take time out of their busy schedule to make multiple trips to the bank. In addition, banks require financial statements, personal tax returns, and a business plan. These can take weeks to produce and after paying an accountant to produce them, are expensive. Most online lenders require bank statements, proof of sales volume and a recent Notice of Assessment form CRA. All of these documents can be uploaded, emailed or faxed to the lender.
Higher approval rates
Year after year the biggest challenge for small businesses is “access to working capital”. Banks typically require a business to be profitable for 5 years and meet very strict financial ratios. Banks don’t lend on working capital so if you’re looking to buy inventory or do a small renovation or hire staff or do more marketing, the bank flat out says no. Banks lend on equipment or real estate but not day to day working capital.
Most other on line lenders approve loans based on the sales history of the business rather than the personal credit history of the business owner. Many businesses are relatively new (under 5 years) that are showing good growth but because of their “age” don’t meet the banks minimum 5 yr requirement.
Clients have the option of choosing a fixed or variable payment option. With the variable option payments are based on the sales volume of the business. A percentage of sales is used as the payments that “ebb and flow” with the sales trends of the business. As business grows so do the payments. If the business slows down the payments are reduced. Most businesses that have seasonal sales trends prefer this option.
Clients can also choose the amount they repay on a daily basis and the length of the term. Some clients use the financing for seasonal inventory so they choose 3-4 month terms. Others use the loan for a 1 time project such as a renovation or marketing campaign and therefore choose a 12 month term.
Small payments are made daily rather than a lump sum monthly payment at the end of the month. Most clients say this is much easier to manage from a cash flow perspective.