Online lenders can get needed credit to small businesses

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While big corporations and public stock offerings get the media headlines, it’s small and medium-sized businesses that serve as the engines powering a healthy global economy.

Although small-business owners in different markets around the world have wildly varying challenges to overcome, they often face one very similar problem: accessing the capital they need to grow.   

{mosads}This challenge has resulted in a global small-business financing gap, estimated by the International Finance Corporation (IFC) to be between $2.1-$2.6 trillion in developing countries. 


Even more striking, there are an estimated 200 to 245 million formal and informal businesses globally that either have never taken out a loan or have a loan but consider it insufficient to meet their financing needs. That’s both a massive problem and a market opportunity for new innovative technologies to help address. 

In developed markets like the U.S., accessing capital can be a challenge for many small businesses. While this challenge cannot be solved overnight, the online small-business lending platforms that we represent are working hard to step in to fill the void, seamlessly delivering credit options to a range of small-business owners who are seeking the capital they need to succeed.  

For many small-business owners, opportunities may arise, and they need to secure capital quickly to take advantage of that fleeting opportunity. Frequently, they need to place an order for equipment today or hire a worker tomorrow

Our economy can’t afford to have these new and small businesses waiting for capital and missing out on the chance to grow and thrive. Online small-business lenders meet small-business borrowers’ need for speed and convenience. 

Applications can be made online and credit decisions completed in one or two days — or even in a matter of hours.  Disbursement of the funds to the borrower is frequently made in similar time frames. Moving from an application to disbursement of funds quickly grants small businesses the flexibility to take advantage of important opportunities.   

It should come as no surprise that small business owners are thrilled to have these new online borrowing options. 

Four leading trades — Electronic Transactions Association, Innovative Lending Platform Association, the Marketplace Lending Association and the Small Business Finance Association — commissioned a comprehensive survey of U.S. small business owners from Edelman Intelligence.

The survey found that a large majority (70 percent) of small business owners believe there are more credit options today compared to five years ago, and 97 percent of those feel that the growing number of financing options is a good thing.

The survey found that the top reasons small business owners are seeking out loans from online small-business lending platforms are to expand their location, manage cash flow and purchase equipment. All three of those uses are directly linked to economic growth. 

When a small-business owner borrows to expand to a new location or purchase new inventory, the economy grows, workers are hired and our communities flourish. 

The Kauffman Foundation has found that even in the depths of the U.S. financial crisis, young and small firms (fewer than five years old and with less than 20 employees) remained a positive source of net employment growth (8.6 percent), whereas older and larger firms shed many more jobs than they created. 

In short, online small-business lending is working for the borrower and for the broader economy. The Edelman survey also found that levels of satisfaction among small-business owners who borrow from online small-business lenders are very high.

Those who previously used online small-business lenders are significantly more likely to take out another loan with an online lender than those who used traditional lenders — (98 percent to 60 percent).

As policymakers in Washington and around the globe consider the profound shifts in our economy and the migration to digital financing options, there are a number of choices that can help promote the health of small businesses and new business formation.  

Federal and state regulatory structures should strive to be flexible and dynamic to promote the healthy competition in financial services that is only possible when online small-business lending models like ours are welcomed.  

With the right policies in place, online small-business lending platforms — at times operating in partnership with traditional financial institutions — can start to narrow the global small-business credit gap. 

Jason Oxman is the CEO of Electronic Transactions Association, an international trade association based in Washington, D.C. that represents merchants and offers electronic transaction processing products and services. Nathaniel Hoopes is the executive director for the Marketplace Lending Association, a trade group that represents digital financial and lending startups.


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