For small business owners, online lending is becoming an increasingly popular option when looking for funding. Traditional banks require significant amounts of paperwork and have a lengthy approval process, but with a decent credit score and internet access, you can be approved for small business financing from a non-traditional lender in a matter of days.
Here's a look at the most important trends and changes in online lending this year that will affect how entrepreneurs interact with these lenders and secure financing.
Tech Is Changing the Game
From self-driving cars to virtual reality, the growth we've seen in technology across the board over the last few years is astounding, and technology's effects on the financial sector are no exception. Online lenders are harnessing the power of artificial intelligence to improve and accelerate the credit assessment and loan decision-making processes. Additionally, there are numerous FinTech companies partnering with online accounting software platforms to target business owners in need of financing. This means lenders are offering unsecured business loans that are tailor-made for specific business owners, and this trend will only grow with the technology.
Unlikely Partnerships with Traditional Lenders
Although they seem like natural competitors, the current trend is for online lenders and traditional banks to partner with each other. A growing number of major banks are teaming up with leading online lenders: ING and Kabbage, JP Morgan Chase and OnDeck, and Santander and Funding Circle, to name a few. The specifics of each of these relationships are slightly different, but what these pairings mean for borrowers like you is that you're getting the best of both worlds-the agility of an online lender combined with the security and customer service that a large, established institution provides.
Increased Industry Regulation
Traditional banks have historically been highly regulated, and this regulation has only increased since the financial crisis and the implementation of Dodd-Frank and similar legislation. When online lenders first began popping up, there was a lack of government oversight that made some borrowers wary of this new frontier in financing. However, the industry is now seeing more regulation from Washington, a trend that will continue in the years to come. The online lending community is also beginning to police itself: with the creation of trade organizations, such as the Innovative Lending Platform Association, lenders are sharing best practices and standards.
While increased regulation can benefit borrowers, who will rest assured that their lenders are beholden to a certain set of rules, greater government oversight could also mean that the process for securing quick business loans will become more burdensome and complicated.
Lenders Are Expanding Their Horizons
When online lending first came on the scene, most lenders focused on only one type of financing. However, these lenders are now moving towards an expansion of product offerings. Online lenders are looking to provide a greater breadth of services with the hopes of cross-selling and becoming the go-to lender for all of their borrowers' various needs. This is also good news for small business owners, who will have more options to choose from when looking for a particular type of loan and will be able to develop deeper relationships with their lender of choice as they turn to them for a wider swath of products.
Federal Reserve Rate Hike
While a lot of the changes in the online lending industry are working in small business owners' favor, there's one larger financial trend that could be detrimental: increases to the benchmark interest rate. Whenever the Federal Reserve raises rates, it will, in turn, increase interest rates for borrowers.
The Federal Reserve has been extremely cautious in raising rates over the years following the financial crisis, but they've already done so twice this year, leaving economists conflicted in their predictions about what the Fed's next move will be.
Many of the changes we're seeing in the world of online lending are beneficial for small business owners. From the expansion of product offerings to harnessing technology for greater efficiency, non-traditional lenders are at the forefront of several positive developments. These innovations will help entrepreneurs, who are seeing the barriers in access to financing fall away as online lenders position themselves as an ever-stronger alternative to traditional lenders.