Technological advancement and its extensive use have made a dramatic effect in every field of life. You will not see that in every service, especially those that are provided online, there is a lot of use of technology which has expedited the process and made it better.
One such particular field that has witnessed a lot of change over the years is online lending. With the use of technology, it has become a safe source to borrow money and people are no longer apprehensive of losing their money or their personal information being leaked to other sources. On short it has changed the entire online money lending scenario for the better.
Changing the online money lending game altogether, technology is driving it full throttle towards newer and better markets overcoming the limitations and restrictions due to demographics and geological locations. You can be anywhere and still apply for a loan online, get instant approval and have the desired amount wired to your bank account in no time, often in less than a working day.
Resulting in rapid expansion
Since technology is creating a new market for the alternative methods of borrowing money, there is a rapid expansion of the money market. The financial technology industryor Fin-tech industry has helped in this process with its countless innovations. The financial services industry is not restricted to the brick and mortar lending sources such as a bank or a traditional money lender.
Now, with online money lending coming into the fore, consumers, whether it is a small business owner or a large organization and even an individual are finding loans to be far more accessible. Consumers can find a lot of sites such as
libertylending.com and others that have been lending money to all sorts of people and successfully growing their business. There are several reasons for such fast and noticeable growth of the online money lending industry becoming the most popular financing options for thousands of consumers over the past decade.
- These online money lending sources are reliable and reputable and have added speed and expanse to money lending services.
- Another significant reason for the growth of online money lending is due to the scaling back by the banks when it comes to small business loans.
You can find such reports in the study titled “The State of Small-Business Lending” by the Harvard Business School.
- It is found through different surveys that in 1995, nearly half of all bank loans comprised of small business loans.
- However, in the year 2012, this significant number fell dramatically by about one-third.
This paved the path of success for the online money lenders that are now posing a significant challenge to the traditional money lenders.
New technology and algorithm
Introduction and incorporation of new technology in online money lending service has made the algorithm even better. With the help of an improved algorithm and new technologies, the alternative money lenders are now making a quick offer and an easy access as compared to other traditional lenders such as banks.
Consumers can now gain almost instant access and approval of different types of loans from these useful alternative lending sources. The loan types include:
- Funds required for raising working capital for any business
- Obtain a term loan
- Any lines of credit
- Equipment and machinery financing and
- Accounts receivable financing.
Since the alternative sources work and provide services at par if not better than the traditional banks, people mostly turn towards them. There are different alternatives to bank credit that you can choose from now and rest assured that you will have a safe, secure and fast transaction. Replacing the banks that has been and still continues to be the principal source of outside capital especially for small businesses, the other different alternative forms of loan capitalincludes:
- Credit unions
- Merchant cash advances
- Community Development Financial Institutions or CDFIs and
- Other factoring products.
With so many varied products and services, this segment of the finance market has been competing successfully with the $700 billion small business bank credit assets. The effect has been more seriously felt since the financial crisis and specifically through the economic recovery which is when the market witnessed a significant growth in the most innovative alternative sources of capital especially for the small businesses.
The conclusion that can be drawn from such proliferation is that small businesses are more willing to seeknon‐traditional credit sources for their financial needs because banks are unwilling to lend.
This new surge of online lenders is more than ready to provide capital to small businesses having more efficiency. Borrowing from such sources is more convenient than the traditional sources. This is the most significant benefit that is derived from the use of technology by thealternative lenders. This has fundamentally changed the different ways in which small businesses can access capital.
The effects of using technology in service are also varied and manifold. According to the Harvard Business School study it has provided benefits like:
- Making the market more competitive
- Instilling price transparency
- Making loan processing simpler
- Expediting approval
- And providing better customer service and relation.
However, traditional banks still view loaning to small businesses as high-risk but these nonbank lenders have helped the new and upcoming small businesses with a breather as they now do not have to bang their heads against the wall to secure funding for their businesses they need to grow.
Online lenders are known by different names such as marketplace lenders, alternative lenders, and non-bank lenders. They are unregulated and come in different shapes and sizes.
Just as their different names, they follow different online lending models to fund small businesses. These models include:
- MCA or Merchant Cash Advance in which lump sum money is paid that must be repaid with a percentage of daily credit card sales.
- Small Business Loans focusing on mid-prime businesses that do not qualify for a traditional bank loan and
- Peer to Peer lending platforms that connects institutional investors to a small business.
All these models have different terms and conditions which you need to consider before opting for one.
