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How Lending Fintechs Are Helping Small Businesses Manage Their Cash Flow Challenge?

Starting and running a small business can be a mammoth task, mostly due to the cash flow challenges micro entrepreneurs face along the way. Research says about 82 percent of small businesses fail due to poor cash flow management or lack of adequate skills to manage cash flow. So, while we have passionate entrepreneurs who are great at the skills they bring in, being unable to manage finances leads the companies to go out of business.

Fintech and its many faces


Fintech, in general, uses technology to help manage finances efficiently. So, whether it is a particular set of tools such as earning calendars, global payments systems, cybersecurity software or payment automation, or lending fintech who bring in a host of services and solutions to help budding entrepreneurs realise their dreams, there are multiple ways in which fintech is providing the thrust small businesses need to grow and expand.

The fintech industry has grown manifold in the past decade with Fintech investing $34.4 Bn, worldwide. More and more small business owners are now becoming aware of the fact that they do not need to bank on traditional lending methods and community banks to support their growth and expansion plans. Here’s a look at some of the ways in which Fintech lending can help small businesses manage their cash flow challenges.

Fintech is all about handling finances more efficiently. There are always parties who have excess of it and are looking for avenues to invest this excess in hopes of better returns than standard interest rates, while there are other parties (such as small business owners) who are looking for lenders who are willing to lend the sum required at a lower interest rates as charged by traditional banks, and with lesser bureaucratic hassles involved.

In an effort to democratize lending Peer-to-Peer (P2P) Lending came about. It addressed the above-mentioned issue perfectly by providing a platform to cash-rich people to direct their savings into areas where they are needed more. P2P lending comes sans issues of lengthy paperwork, complete with quick disbursals, and easy repayment modes that do not attract any penalty on early payments. In short, it is an extremely easy way for small businesses to fund their cash flow requirements in a jiffy.

Another big plus about fintech lending is that most of the loans are soft pulls instead of the usual hard pulls as provided by traditional banks. With soft pulls, microentrepreneurs can remain free of worries about their loans affecting their credit rating. Thanks to fintech, lenders can conduct background checks faster, more efficiently and accurately, thus making the loan origination process quicker and more effective for borrowers.

Just like, P2P lending, B2B lending too, works on similar lines. Both methods cut the intermediaries, thus making loan origination a cheaper and more efficient process.

Invoice trading or invoice factoring is a boon to most small business owners who are fighting the 90-day invoice payment window to stay afloat. Accrued receivables can, many a time, spell doom for small businesses as not receiving the same on time can lead their working capital to take a hit, and in the long term bring the business to a standstill.

Through invoice factoring, small business owners can sell their accrued receivables to fintech lenders in exchange of a small fee. In essence, they receive the amount accrued at the right time, by forgoing some of it in the form of a fee. Lending companies assume the risk of the accrued receivables in exchange of the fee and realise the invoices from the customers of the small business.

Yet another popular method of fintech lending is crowdfunding. This one of its kind form of financing products and services has led to the establishment and growth of many successful startups such as Pebble ($10,266,845), Nomiku ($586,061), Misfit ($846,675), Formlabs ($2,945,885), among others. There are multiple crowdfunding platforms that are hosting crowdfunding requests at present, most popular among them being:

    • Kickstarter

    • Indiegogo

    • GoFundMe

    • Patreon

    • MightyCause

    • InKind

    • Crowdrise

The best part about crowdsourcing platforms is that not only do they help entrepreneurs raise early-stage finance, they also help them connect with a community of potential customers and help them reach a market where they can test and validate their project idea and also create a loyal community who appreciate their offering from the very beginning.

On a different note, where the requirement is not about funding a product idea but a business concept that needs finance to be pumped in, in larger quantities, fintech lending in the form of equity-based crowdfunding can be helpful. In this method, small businesses approach angel investors, individual investors, and venture capitalists to source funding for their company, in exchange of part of their company’s equity.

In equity-crowdsourcing, too, the small business owners tend to gain more than just financing from their investors. They also gain the knowledge and expertise, along with the assistance from dedicated teams (marketing, logistics, finance) of the investors. The investors too, because of their vested interest in the company doing well, extend advice and support to the small business owners to ensure they do well, and the company grows and expands in the long term.

Overall, fintech lending has come a long way since its inception. It has changed the business landscape worldwide by providing small and medium businesses and startups the impetus they needed to create, innovate, grow, and expand. Without innovation the world comes to a standstill and fintech lending while evolving and innovating in its own industry, has helped the rest of the world move forward as well. In fact, fintech lending is set to become the future of lending whereby smooth and efficient cashflow would become the hallmark of the industry.
  • May 9, 2019