Fintech companies are filling in the gaps in SME finance that the banks left wide open. As smaller businesses often don’t need a considerable amount of money when they applying for a loan, they’re struggling to get any financial assistance. This is mainly because banks often don’t see any profit in providing loans of less than $100,000.
Traditionally, a bank also demands collateral that a small-business owner usually doesn’t have. Both factors created a space that fintech companies could fill by offering what are termed “microloans,” which is defined as loans of up to $50,000.
An example of a fintech company offering such loans is Growthbond, which provides a way to tap into this type of credit in just a few minutes through a web app. Fintech companies like Growthbond offer unmatched speed and convenience; plus, their overall lending requirements (e.g., credit score levels) are less restrictive than banks', and their interest rates, lower.
The model for GrowthBond is relatively simple. They look at how a company’s Facebook ads and Stripe sales metrics are doing, then give them a loan according to those figures. That number can vary between $100 and $50,000. That money goes right back into extending the company’s reach, and then GrowthBond charges a 20% commission from new sales until the loan is paid back.
GrowthBond is riding a wave of innovation in financial technology to provide a different solution to serve small businesses in a way that tackle their three main challenges: 1) access to capital, 2) access to skills and 3) administrative burdens. We seek to create an online business environment and finance solution for the new digital economy that can be rolled out anywhere. We will make it easy and completely paperless to apply for funding, make hiring/firing of skills as easy as buying books online, and automate all business financials, receipts and bookkeeping into a single system.
A World Economic Forum report gave the trend of online lending even more credit, portraying it as a global paradigm shift in which fintech companies are enabling entrepreneurs in developing countries to join in the global business environment. This is due in large part, the report said, to such solutions from these companies as peer-to-peer lending, merchant and ecommerce finance, invoice financing, supply chain financing and trade financing.