What is a fintech lender?
Using online technology, fintech lenders provide finance to businesses and individuals. With leading-edge programs and processes, a fintech lender can safely and securely analyse a potential borrower’s finances online. In addition to accessing bank and accounting data, the lender has the potential borrower fill out a loan application online. The application and approval process is usually quick, enabling the borrower to get approved within 24 hours and get funds within days.
One area where fintech lenders stand out is in providing small business loans. In Australia, these non-traditional lenders don’t fall under the same regulations as banks, so they don’t have the same risk-based limitations that banks have. After the Global Financial Crisis (GFC), risk pricing for loans to SMEs was increased and made it less lucrative for banks to lend to Australian small businesses. This is where a new type of lender entered the financial system to offer business finance.
Since they take on more risk and don’t require property as security, fintech lenders charge higher interest rates than banks. In place of collateral, fintech lenders usually require a personal guarantee from the owners or directors of the business.
Small business loans from Australian fintechs are short term – usually six months to three years. Loan amounts can range from $5,000 to $250,000 (and up to $250,000 with Moula). The amount of the loan and interest rate will depend on the result of the financial assessment, which is mostly done online but can include phone discussions to clarify application responses and get any additional information needed.
Why more SMEs are choosing fintechs for business financing
The rapid rate of fintech lender growth has been the result of being able to provide business loans quickly and easily. Some of these factors include:
- Ease – by using leading-edge technology, fintech lenders can analyse the finances of a business, quickly, safely and securely online. This means that the borrower does not have to complete large amounts of paperwork to be considered for a business loan. Applications can be completed online, so there’s no reason to visit a bank branch.
- Speed – small business owners don’t have the time to complete stacks of paperwork and then wait weeks or months to get an answer. The fintech industry has simplified the process which makes it an appealing alternative in the business lending space. Usually, small business loans from fintechs are approved within 24 hours or a few days. This is compared to bank loans that can take up to two months to approve.
- Greater chance of approval – according to the Digital Financial Analytics SME Report, banks reject around 75% of small business loan applications. These businesses are more likely to be approved by a fintech lender. Although interest rates for these lending alternatives are higher due to the higher risk profile of borrowers, they are usually for short-term loans, so overall interest paid can be lower.
- No collateral needed – many fintech lenders offer unsecured business loans. This means that no collateral is required. A guarantor may need to sign for the business loan and the fintech lender can seek to wind up the business if the borrower fails to make payments.
How to choose a fintech lender
With so many options, how do you choose the right lender for your small business loan?
Here are a few things you can do when looking to choosing fintech business loans:
- Check customers reviews – this is a good way to see how satisfied customers have been with a particular company. Moula, for example, has a 9.8 out of 10 customer satisfaction score on Trustpilot.
- Look for full transparency and disclosure – make sure you read the fine print and the terms and conditions of the financial services provider. You will want to know all the fees and charges so you can accurately compare what’s offered by each fintech company.
Find out more in How to Compare Business Loans.
