In times of crisis, obtaining a U.S. Small Business Administration (SBA) loan can prove difficult.
A tsunami of applications can flood the government’s system and a program once flushed with cash can run dry in short order.
If you’re a small business owner seeking an emergency loan amid broader economic hardship, you will have to compete for funds with other entrepreneurs desperately searching for financial relief—including many with an abundance of resources.
If a traditional SBA loan has eluded you, the alternative lender community, such as fintech companies, could provide the relief you’re looking for.
Fintech companies are digital lenders that perform many of the same functions as traditional banking institutions. The biggest difference between them is fintechs invest heavily in technology to provide a more seamless customer experience.
The fintech industry has exploded in recent years, as consumers have become more acquainted with their services and performing financial services over the internet. The industry is projected to grow by nearly 25 percent by 2022—with its value estimated to hit $309.98 billion.
The economic devastation caused by the novel coronavirus (COVID-19) pandemic has shown that the federal government is willing to work with fintech companies to process loans more efficiently. As a result of the outbreak, several such firms have received approval to participate in the SBA Paycheck Protection Program, which provides loans to businesses that maintain full employment during the crisis.
The SBA serves a crucial function in helping small business owners obtain loans for a variety of scenarios, even in the best of times. And as in the case of the economic emergency spawned by COVID-19, applicants can only receive funding from approved lenders, all of which you can find on the agency's website.
The bottom line is yes, fintech companies may be a suitable alternative for businesses that have been unable to secure an SBA loan through a traditional bank.
And as a short-term option, allowing fintech companies to administer loans during a crisis, and therefore giving consumers more options, is definitely a plus.
Alexander Tiktin, an attorney at Davidoff Hutcher & Citron, told business magazine Inc. that “based on our experience, fintech companies have been able to turn around applications relatively quickly and efficiently without too many complications."
The downside is that fintech companies may not be authorized to participate in the program in the future, meaning businesses will still require other options if an SBA loan is out of reach.
If that’s the case, many fintech lenders provide various types of small- and medium-sized business (SMB) loans for companies that need quick access to capital. Emergency SMB loans can be used to satisfy payroll, keep the business afloat, or for a major purchase, such as equipment or supplies needed to increase efficiencies.
If you’re in the market for such loans, it’s likely that your credit isn’t where you’d like to be or you simply need access to capital sooner than the SBA loan process allows.
There are several funding options available for SMBs, including a merchant cash advance, short-term loan, and a revolving line of credit, among others. Many of the SMB loans you’ll come across can be processed and distributed to applicants within days—which can be appealing, so long as you’re comfortable with high interest rates and shorter repayment terms.
As always, it’s important to weigh the pros and cons of any loan that comes your way. And as you navigate the world of finance, you’ll likely notice fintech companies that you didn’t know existed previously. But unfamiliarity shouldn’t be a reason why you hold back. According to a report in banking news and trends site Banking Dive, fintech companies, which are competing with conventional banks in the consumer sector, are increasingly focusing on SMBs. In one analysis Banking Dive cited, fintech companies serving SMBs raised more than $4 billion in 2019.
If this is your first foray into small business funding, it’s important to know that there are resources available for relief. While a traditional SBA loan is considered the preferred option for businesses, the inclusion of fintech companies may help the system increase efficiency—for however long they’re allowed to participate. But even if that option disappears, alternative lenders in the fintech space can also deliver financial assistance quicker than you’d expect, but be sure to scrutinize the details to avoid any unnecessary surprises.
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