SMB Loans Go Digital: Easier Access, Better Services, More Loans

May 18, 2016 Peter Krasilovsky


The new digital environment has transformed SMB marketing. It is now also impacting the world of SMB loans.

Stringent bank requirements, inefficient processing and conservative lending practices can make it hard for many SMBs to get loans.   In a survey last year by Wells Fargo, just 32% of SMBs said that obtaining financing was “easy.”

Enter a new breed of loan providers, who use a number of data sources in an effort to efficiently assess and approve SMB loans. These largely use automation and other online capabilities to process and manage loans. They often do so at lower costs and with more flexible terms. Some also integrate loans with marketing support.

According to The 2015 Small Business Credit Survey, 20% of all SMB owners applied for loans or lines of credit through online marketplace lenders. Seventy percent were approved for a loan or line of credit.

The new  breed of loan providers include Peer to Peer lenders such as Lending Club, Avant and Prosper; new Big Data oriented players such as Kabbage, OnDeck and ForwardLine; and new loan units from large payment processors such as PayPal, Square and Amazon.

Kabbage and On Deck, for instance, utilize a variety of data to uncover positive aspects about a small business, which may not have enough history and assets to otherwise secure a loan. They also may look at online reviews and social media feeds in a bid to gain a better understanding of a business’ goals.   Kabbage’s motto?  “We actually want to lend to Small Business.”

Kabbage’s automated model assesses three factors: capacity to repay, character, and the consistency or stability of the business. For the latter, it looks at an SMB’s financial history with such transaction channels as PayPal, Amazon, Sage, eBay, Stripe, Etsy, Yahoo, Authorize.net and Square.  

Another approach is taken by ForwardLine, which leverages its data and a proprietary underwriting algorithm to offer short term loans and cash advances.  Chief Revenue Officer David Teichner tells us that many of the loans are used for marketing campaigns that will prove instrumental for an SMB’s growth.  Typical loans are in the $30-50K range.

“Small business owners want to grow their business,”  says Teichner.  “They need capital, which ForwardLine provides. Our loans are used to help business grow, whether working capital, additional retail space or other business needs.”

In looking closely at the new breed of small business loan providers, there is clearly a lot of promise in the segment.  Many thousands of SMBs are already taking advantage of these opportunities. Some hiccups in the space, however, have recently put small business loan providers in the news. These include excessive fees, irresponsible loans and violations of stated loaning practices.  SMBs seeking loans clearly need to go in with their eyes open, and be vigilant in accepting their loans.      

About the Author

Peter Krasilovsky runs Local Onliner, a consulting firm that focuses on how digital channels target local consumers. “Local” has been a focus for him since 1995-96, and the firm's practice now includes search, marketplaces, geotargeting, vertical media and loyalty and promotion services. Peter was Chief Analyst and Vice President for BIA/Kelsey from 2006-2015. He holds an MA from The Annenberg School of Communications at The University of Southern California and a BA from Sarah Lawrence College in Bronxville, NY. He currently resides with his wife Sharon in Ashland, Oregon.

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