"The future of business lending is one without paperwork and automated approvals."
Is the future already here or are lenders just pretending in a bid to lure customers in?
Amongst the sea of copy cat jargon, it's not uncommon to hear lenders touting online applications, same day approvals, deal direct with the lender and more. How real is this, and how does this affect your perception of lenders when shopping for working capital online?
The landscape for “alternative” or “Non-Bank” business lending is going through an evolutionary change in Australia, one that is going to benefit entrepreneurs dramatically.
"The biggest change impacting access to working capital is cloud accounting. The financial data held within cloud accounts has opened up lending, insurance, invoice finance, currency services and growth opportunities to the millions of small businesses that drive the economy."
Two-way data sharing opens up access to lenders
Lenders like Waddle link into your online accounting data to provide ongoing funding as long term affordable debt". Truly innovative lenders are waking up to the fact that the future of applying for business loans is the “self-service” option. Everything we do these days is self-serve with no or little intervention from middlemen with some lenders delivering frustration free ways to get business owners quick answers, remove lengthy processes, provide ongoing financing that doesn’t disrupt the general business operation.
Online lending is still relatively nascent, but growing fast. Strong take-up of cloud computing services such as accounting is enabling lenders to gain access to business data faster to facilitate loan underwriting.
The tech-savvy business owners are using cloud accounting and taking advantage of online payroll, inventory and CRM services to grow their businesses. Unbeknownst to business owners, they are displaying key signs of a business that modern lenders like Waddle are actively seeking out to lend money to.
Lenders that analyze online data to assess risk can deploy debt to businesses at a faster rate, reduce underwriting costs, staff and pass on cheaper rates to “healthy” borrowers that keep accurate accounts online.
Where does the advisor fit in?
If there’s one thing that’s critical to business success, it’s accurate data. Data is becoming the key to unlocking business services in real-time. The electronic connectivity between advisors and the business owner’s financial information needs to be accurately maintained.
Traditionally, businesses would seek a third party service, only to find they need to update books and records. Delays are costly, frustrating and starve operational resources. Continued, accurate accounts position the business owner to access third party services at any point in time.
The advisor role has now been elevated beyond traditional accounting duties to include access to working capital, insurance, foreign exchange, payments, integrations and more.
Business owners that work together with advisors are being rewarded by lenders that recognise that advisors play the key role in reducing risk.
What is online lending?
Unlike banks, online lenders use algorithms to underwrite small business loans based on traditional factors – such as credit score, revenue and cash flow – and non-traditional metrics, including past payments to vendors, accounting data and social media data.
Online lenders fund loans fast by linking into this data in real-time, rather than taking traditional loan applications, assessing them manually. Although all manual processes cannot be removed, online lenders are doing a good job automating any repetitive processes that don't require human assessment.
This type of business lending is going to be evolutionary rather than revolutionary as it will take some time to educate business owners of the benefits and develop trust behind these new lenders.
Banks are very far from ever being replaced and in fact we would say that banks have a major part to play in the future of online lending and can benefit from working closely with these new lenders as they evolve.
Where's the money come from?
Online lenders typically get the money they lend from several sources. Some lenders raise money through private investors, joint ventures or venture capitalists and then fund the loans themselves.
The benefit of obtaining working capital from dedicated online lending companies are reduced time to funding and ongoing support which could potentially be lacking from marketplaces or peer-to-peer lenders.