Technology Disruption & Small Business Credit

Sheila Shaffie Blog

Here are some basic numbers:

  • In 2014 alternative lenders originated around $12 billion of loans of which $5 billion were small business loans (yes it is a small fraction of the overall loans).
  • Over 25% of small businesses will consider using alternative lenders that is thanks to technology disruptors in the banking sector.
  • Over 20% of small businesses consider the loan application process extremely challenging

While the first set of numbers may not seem that concerning, the last two are. All things being equal between a traditional bank and an alternative lender in terms of availability of credit and offering attractive loan & credit card rates, borrowers are sighting the following factors for considering alternative lenders:

  • Faster response time & access to funds
  • Easy processes
  • Modern approaches to origination, document submission, communication…

To say it in a nut shell it is all about customer experience. More providers means more options for business owners. Banks that differentiate themselves by focusing on customer experience, emphasizing mobile device accessibility will be at the head of the pack. Here is an example of ones of these technology disruptors: https://www.iwoca.co.uk/ Looks very different that the typical bank website doesn’t it?

Banks do deserve a lot of credit in that they do approve over 80% of applications they receive, but the borrowers that do go through the process feel like they have gone through a meat grinder. And of course there are all the other businesses that don’t even attempt.

Banks have to create more frictionless processes. And for the short term here are some indicators/characteristics of small businesses that are most likely to consider alternative lending:

  • The person mainly responsible for financial decisions is in the Gen X/Y category
  • The company tends to be an early adopter of technology
  • They generate less than 20 M in revenue