There’s no denying the fact that technology has drastically altered access to finance for businesses. Financial technology expert Chris Skinner believed that the era of FinTech began in 2005, with the launch of Zopa, the UK’s first peer-to-peer lender. Since then, the alternative finance sector has exploded, with more and more innovative products and providers entering the market.
In 2008, UK banks started to tighten their lending criteria, making it even more difficult for startups and small businesses to obtain finance. The financial crisis escalated the demand for alternative funding solutions, as businesses had little choices when it came to financing their ventures…
Faster application approvals
Technology made it possible for lenders to go online with their product offering. Businesses no longer had to spend hours on end completing lengthy business loan applications, or waiting weeks upon weeks for approval. The rise of online platforms made it possible for small businesses to complete applications in a matter of minutes, and receive their answers the same or next day.
Increased access for SMEs
Not only responsible for speeding up the process of obtaining finance, the alternative funding market has also played a vital role in increasing access to businesses of all sizes. As mentioned, traditional financial institutions often set unrealistic lending criteria on businesses seeking finance. This meant that only large businesses and MNCs had the luxury of easily accessing funding.
As time went on, this resulted in an unequal distribution of money lent, with SMEs often forgoing funding. Thankfully, as a result of innovations in financial technologies – startups, small businesses and companies with bad credit are now able to apply for funding.
New, alternative funding solutions
Secured business loans were once heralded as the go-to lending product for companies. However, this is no longer the case. Now, a wide range of financial products exist for businesses, which means SMEs have more options than ever before. This has resulted in more and more businesses turning to alternative funding sources and looking into the many new products available. Examples of alternative finance include:
- Asset finance
- Invoice finance
- Merchant cash advance
- Crowdfunding & Peer-to-peer lending
- Revolving Credit Facilities
Each of these products have a specific purpose and can be tailored to individual business needs. This is yet another way technology has changed the role alternative finance plays for businesses, providing more bespoke options that better fit individual business requirements.
For example, a revolving credit facility can be helpful for businesses that need a facility they can tap into as and when they need it most. A business may not always need an upfront sum of money, but rather, the ability to borrow small amounts over a longer
period of time. Business finance providers that offer revolving credit facilities help businesses reduce cash flow issues, often offering same day access to funds.
On the other hand, businesses in their early stages that need to obtain equipment and machinery may not have the funds available to buy such assets off the bat. In this case, asset finance solutions can provide alternatives such as hire purchase and leasing. Under rental agreements, companies can make monthly payments whilst using the equipment on a borrowing agreement.
As for invoice finance, this product does not require businesses to make monthly payments at all. Instead, invoice finance providers buy client invoices for a set fee and take over responsibility for obtaining payment. After a business has sold its invoice, it receives the amount owed by the client upfront, and no longer has to worry about chasing for money owed.
The rise of online banking
Previously, banking was a bricks and mortar process that required visiting your local branch if you needed anything linked to your business banking account. Technology has played an important part in the rise of online banking.
Now, customers are able to do almost anything from the click of a button on their phone apps or computer logins. Business banking has been streamlined and again, improved
access by enabling account information to be viewed from anywhere using a mobile phone.
This has also caused online-only banks to rise in popularity, with business banks like Monzo and Resolut becoming the new go-to for businesses. These firms are highly-secure and offer assurance that business data will be safe from fraud and theft.
The future of business finance
These are just a few of the ways technology has had a positive impact on business funding and banking. It’s exciting to think about what’s next for the business finance world, but one thing’s for sure, we owe it all to financial technology!