A new crop of FinTech (financial technology) startups has popped up in the US and abroad. These startups (usually lenders) have found a niche market in small and medium enterprises (SMEs) and in some individual borrowers. There are certain advantages to applying for a loan through a FinTech company. Of course, there are also a few disadvantages.
Fighting the Old Standard
Technology is everywhere. It’s inside of your home, on your wrist, in your pocket, and in a million other places inside and outside of the office. Most of us could probably not live without being connected in some way. Most businesses have caught up with connectivity and technology. Many businesses have adapted and are offering consumers a financial option. But one business that hasn’t really stayed current is the business of banking
Traditional banking institutions are still slow to process loans. Individual and business credit factors that have been in play since the fifties (or earlier) are still the ones that are considered. In other words, banks haven’t kept up with the times - and this often means that some businesses still cannot get needed loans.
This is where the new crop of FinTech startups comes in.
Bridging the Gap
The newest startup lenders do two things banks cannot: they process loans in minutes and they look at additional credit approval criteria. Those criteria depend on the company, but these companies use algorithms to look at things like bank deposits, amounts in accounts, and even some social media factors - in addition to your current credit score. In short, it is a more well-rounded approval process.
Most of these lenders do not offer massive loans (ranging up to $1-2k). The idea is to provide a company or individual with a poor credit rating a chance at improving that rating. The methodology is to provide a small loan ($500), and then increase that loan as a person’s credit rating approves. For some borrowers, there are clear advantages.
The other really important thing that these companies are doing is providing borrowers with credit learning courses and instruction booklets. So you can learn how to improve your credit, and how to do things like creating a business plan. The disadvantages are fewer.
Some Small Drawbacks
You cannot get a massive loan through these companies. The other drawback is that some people and businesses will still not be approved for loans. In the grand scheme of things, though, it is worth checking out and applying if you have been turned down for a traditional loan.
Some FinTech lenders to consider include:
- Kabbage
- SoFi
- Wealthfront
...and many others. As always, compare rates, ratings, and other factors to find the best fit!
