“Banks just aren’t set up to understand small businesses”

From Maija Palmer at Financial Times:

“There is an estimated $2tn gap between SME funding needs and what banks will provide. If there were one overriding theme to pick out in the applications for this year’s Future of Fintech Awards, it was a focus on small business customers. The words “small businesses are poorly served by banks” kept cropping up on submissions. Fintech companies, it would seem, are lining up to fill this gap in the market by providing small companies with everything from lending, foreign exchange to advice. For many founders the idea for their start-up had come from a bad personal experience with small business banking…SMEs are a potential enormous market. Small companies account for 90 per cent of the world’s businesses, according to the SME Finance Forum, a global small business association. They are, indeed, poorly served by banks, says Matt Gamser, head of the forum. Banks tend to provide personalised services for a few high-value customers, or automate services for a mass consumer market.”

In Singapore, research from SPRING Singapore showed that 180,000 small and medium enterprises (SMEs) consists of nearly 99% of the all businesses. In addition to that, they contribute to about half of Singapore’s GDP and employ approximately 70% of the labour force locally. These statistics show that SMEs play a significant role in the development of Singapore’s future and the creation of job opportunities. While they account for a large percentage of the economic market, a gap still lies between small businesses demand for funding and what banks are willing to provide. Banks are more willing to provide personalised services for high net worth clients or automate services for large consumer markets.

Problems that local SMEs face include slow payments, rising costs, currency fluctuations and lack of skilled staff. Having sufficient cash flow as well as the timing of these cash flows are necessary to aid in their concerns. With limited opportunities for bank financing, SMEs are starting to turn towards alternative financing options which includes crowdfunding, peer to peer financing, ICOs and invoice financing. Through these options, SMEs are able to obtain loans much faster, with less paperwork involved. Invoice financing platforms conduct stringent background checks on each invoice and they are graded based on their creditworthiness. Therefore, the speed at which applications are checked are much faster with greater efficiency and customer satisfaction. Continue reading

Using Peer-to-Peer Lending As A Method For Startup Growth

From Peter Daisyme on Forbes:

“In advising all types of startups and established small businesses, I find that many are seeking some additional funding that is too small for an angel investor to get a return for their effort. Banks also think it’s not worth their time. However, the amount necessary may be too much to finance on a credit card, or perhaps the entrepreneur doesn’t want to use that method. That’s where peer-to-peer (P2P) lending is working to fill that lending gap and why I recommend considering this lending alternative. I find that this model may be a solution for many small businesses that are struggling with just tapping smaller funding amounts.

Some of the immediate benefits of a P2P loan is that no collateral is required. Lower interest rates tend to be available, depending on your credit score, loan amount and loan term, because the peer-to-peer lenders operate with low overhead. You can repay the loan early and not have to contend with any prepayment penalties. Since it is an online lending environment, you’ll also enjoy faster approval and no paperwork except for a few online forms and a digital signature.

Once you borrow and repay the loan, there’s an opportunity to continue using your P2P lending connection to tap additional funds later on whenever you need additional capital. That accessibility can help your business goals and deliver quickly rather than leading to extra time pounding the pavement for money. ”

For start-ups that have yet to build strong financials or establish a strong credit record, P2P financing serves as an alternative funding method that can greatly improve the cash flows and hence business growth. Some additional advantages include faster approval process as well as reduced paper work, which make P2P financing an even more attractive option.

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