Gaining capital is crucial to start or growing your small business. Often, entrepreneurs rely on borrowing money. However, securing a loan can be a daunting task. Thankfully, small business lending is evolving, and various innovations make it easier and more accessible for entrepreneurs like you to obtain funding.
If you want to know and take advantage of these innovations, continue reading.
1. Line Of Credit
While a line of credit (LOC) isn’t exactly a recent innovation, it’s still worth mentioning as new technologies, such as online platforms and more sophisticated risk assessment tools, have made LOCs more accessible and efficient. LOC can give business owners and entrepreneurs a set amount of money they can tap from a lender.
Its borrowing and payment schemes are very flexible, which is LOC’s main advantage. If you want to know more and take advantage of this, you may want to get a line of credit from Credibly.
2. Automated Underwriting
Consider borrowing from a lender that uses automated underwriting to process loans faster and accurately assess credit risk. After all, it speeds up loan approvals and decision-making through algorithms that analyze borrower data.
While automated underwriting does reduce human subjectivity, it is important to note that the algorithms used can still have biases, as they are designed and trained by humans. Nevertheless, compared to traditional underwriting, you can at least rest assured that you’ll be given a more objective, fair, and consistent assessment. And since everything is automated, your loan will be less prone to human errors and prejudice.
To learn more about automated underwriting or robot process automation (RPA), consider looking into RPA in finance industry.
3. Alternative Credit Scoring
For years, credit scores from leading companies have dictated everything related to loans. Nowadays, some lenders also look into alternative credit scoring.
Alternative credit scoring uses nontraditional data, such as social media activity and utility payments. This is not only useful for borrowers with poor credit scores or who don’t have an established score yet, but also for those with good credit scores, as it provides a more comprehensive assessment of their creditworthiness.
For lenders, this innovation provides a complete picture of a borrower’s creditworthiness and allows them to expand their lending pool while mitigating risk. By considering more data points, they can give loans to those who deserve them and earn more profits.
4. Digital Payment Systems
At this point, you must be already familiar with digital payment systems. While they are designed to be secure, it is essential to have proper cybersecurity measures in place to ensure their safety, and users should be aware of the potential risks associated with online transactions. They’re fast and convenient to receive and send money online.
Having a lender that utilizes a digital payment system is convenient for a borrower. After all, it offers faster transactions and provides a seamless experience for customers. It also simplifies the loan disbursement process for the lender and allows you to make payments easily.
5. Peer-To-Peer Lending
Peer-to-peer lending platforms connect borrowers with investors who fund their loans. You should explore peer-to-peer lending as an alternative funding source for your small business. When it started to become popular, it was considered a game changer. It gave small business owners and entrepreneurs—regardless if they’re in the rental or real estate industry—another option for raising capital, diversifying their funding sources, and obtaining loans at competitive rates.
Meanwhile, crowdfunding allows businesses to raise funds from a large pool of individuals through online platforms. Instead of borrowing a lump sum from a company, crowdfunding can allow a startup to gain capital through potential customers, supporters, and small-time investors.
Crowdfunding can help you test the market, gain exposure, and validate your business concept. Basically, it’s an excellent tactic to gauge how the public will receive your business, as crowdfunding platforms can be used to pitch your business idea, showcase your products, and receive funding from a diverse group of people. Additionally,
7. Merchant Cash Advances
With a merchant cash advance, a business can get cash upfront in exchange for a percentage of its future sales. You must explore merchant cash advances to obtain fast funding for your business without collateral. It’s another alternative option to traditional bank loans and is accessible even to those with poor credit.
Moreover, merchant cash advances have flexible repayment terms and allow you to repay based on your sales volume. Of course, having a percentage of future sales can be an inherent risk you should think about.
8. Invoice Financing
Invoice financing can allow an entrepreneur to obtain cash by selling their outstanding invoices to a financing company. Consider invoice financing to receive cash flow without waiting for your customers to pay. Doing so provides quick funding and eliminates the risk of bad debt.
9. Online Loan Marketplaces
Online loan marketplaces connect borrowers with multiple lenders who compete for their business. You must explore online loan marketplaces to obtain the best offers and terms.
Looking into an online loan marketplace provides multiple loan options and allows you to compare rates and terms easily. Additionally, online loan marketplaces save you time by simplifying the loan application process and providing fast funding options.
These innovations mentioned above can benefit small businesses and startups. They provide entrepreneurs and business owners with various options to obtain financing—regardless of their credit history or financial situation. Consider exploring these options to find the best financing solution for your business.