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Jan 31

How Lending Through FinTech Can Benefit Startups

  • January 31, 2017
  • News

Most startups share a common burden: seeking and obtaining funding, as quickly and as efficiently as possible, to support rapid business development. While tech startup founders go the Angel Group route for funding, most business owners commonly rely on banks to obtain loans for finances; interestingly, there are numerous FinTech companies that provide an effective alternative to the traditional methods of banking.

FinTech startups began to emerge in the 1990s, but it has not been until recently that FinTech has become more of the norm rather than the alternative. FinTech is a broad industry that attracted $12 billion in investment in 2014, and offers a variety of services such as innovations in financial literacy and education, retail banking, investment, and various crypto-currencies such as Bitcoin. Numerous FinTech technologies are currently being adopted and should reach mass adoption by 2020, include mobile banking, mobile trading on commodities exchanges, digital wallets such as Apple Pay, robo-advisor sites such as Betterment, financial advisory, equity financing and all-in-one money management like Level and Mint.As far as the lending industry is concerned, each FinTech company out there comes with their unique set of offerings, using different algorithms from traditional banks to figure out whether or not a company qualifies for a loan. Some notable FinTech companies include OnDeck, Lending Club, SmartBizLoans.com, SoFi, and Kabbage. Common advantages amongst the FinTech companies are how loans are set at an affordable fixed rate, immediate response to find out if you qualify or not for a loan, customer service is offered seven days a week, and the ease of the application process.

As far as the lending industry is concerned, each FinTech company out there comes with their unique set of offerings, using different algorithms from traditional banks to figure out whether or not a company qualifies for a loan. Some notable FinTech companies include OnDeck, Lending Club, SmartBizLoans.com, SoFi, and Kabbage. Common advantages amongst the FinTech companies are how loans are set at an affordable fixed rate, immediate response to find out if you qualify or not for a loan, customer service is offered seven days a week, and the ease of the application process.

There are differentiating factors between these FinTech companies. Lending Club operates at a lower cost than most traditional bank lending programs. Additionally, there are no hidden fees or charges as they strive to make credit more affordable and investing more rewarding for businesses. Business loans are set at an affordable fixed rate.

With SoFi, startups may borrow from $5-100k at a fixed rate that starts with 5.95% APR (annual percentage rate) with auto pay. Additionally with SoFi, there are no origination fees, nor prepayment penalties.

SmartBizLoans.com offers loans from $30,000 up to $350,000 with interest rates set at 6.25-7.25% for a loan term of 10 years. Applicants will know if they prequalify without impacting their credit in as little as five minutes. SmartBizLoans.com provides businesses with the opportunity to obtain smaller-sized SBA business loans then would typically be available through main street banks that prefer lending in amounts ranging between $250,000 and above.

Kabbage runs entirely online and automates linking existing business accounts. It takes only minutes to apply and an instant decision is made using real-time business data. Kabbage also offers customer service seven days a week.

While there are benefits to startups using FinTech, there are its drawbacks as well. Janice Odell, a Financial Consultant and Principal at Odell & Associates, gave some insight into the FinTech world. “One thing about [using FinTech] is that you lose your personal relationship with the bankers because everything is online,” Odell said.

There are many lending opportunities available through online FinTech companies; be sure to start exploring the world of FinTech to get all the benefits that may be available to you.

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