How Online Financing is Disrupting Small Business Loans (For the Better!)

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This post was contributed by Kabbage, Inc. Kabbage allows businesses to use their own data to get access to the funds they need to grow, all-online, and within minutes.

It used to be that whenever a small business owner needed an infusion of cash to take their business to the next level, it required a visit to the loan officer of a nearby bank branch. That was followed by an application process, an interview, and waiting for a verdict. Thanks to technology and the birth of non-traditional financing avenues, that isn’t the case anymore. Now, a small business loan can be obtained by filling out a form online. Oh, and the answer comes back fairly quickly. Pretty cool, right? 

Why Go High-Tech When Looking For a Small Business Loan? 

“We were consistently turned down for bank loans because our business is less than two years old and my credit is still recovering from starting our business,” says Lauren Fairbanks, owner of Digital Remedy, a chain of electronics repair shops in South Carolina and Louisiana. “I was initially worried about how long it would take to fund the loan, or whether our loan would even get funded, but the loan was completed and deposited into our account within a week and a half. The payments are deducted from our account on a set day each month, so we don't even really have to think about it. It's been a pretty painless process, and if we ever need cash to expand again, I'd probably choose this method over traditional financing - even if I had to pay slightly higher rates,” Fairbanks says. 

Small business owners appreciate the ease of the application process offered by non-traditional lenders and how quickly the funds become available. In a world where information moves rapidly, most of today’s small business owners aren’t interested in the traditional process that consists of waiting for their application to be reviewed, an interview, and eventually a decision from an individual or a group. 

High-Tech Companies Give More Small Businesses Access to Cash 

Non-traditional lenders operating on a high-tech platform have the ability to make their decisions at the speed of the Internet. They often look beyond standard profit and loss statements and examine the metrics of the business as a qualifier for a small business loan.
Elizabeth Potts Weinstein is the founder and lead attorney at EPW Small Business Law. Recently, she wanted to add to her staff and needed to figure out how to pay for an employee. 

“A few months ago I was ready to hire a project manager, but didn’t have the cash flow to pay her salary,” Elizabeth says. “It was a classic chicken and egg problem. I looked into traditional bank small business loans, but they take way too long and had too much paperwork. I also would have had to personally guarantee at least a part of the loan, and I didn’t want to do that.” 

So instead, Elizabeth looked into getting the financing she needed from online lenders. 

“It was easy to apply for a short-term line of credit via Kabbage,” Elizabeth says. “I gave the access to my business bank account and they gave me a line of credit based upon my business income. They even increased the credit line due to my Twitter following.” 

Elizabeth withdrew the money from her line of credit to pay the new project manager’s first few paychecks. 

“Now I’m making more income and have enough to pay on the line of credit and pay my project manager,” Elizabeth says. 

And she considers the high-tech lenders disruptors in the financial industry. 

“The approval process is based on things that are actually important - recent income that is proven by bank accounts, PayPal, accounting software, and potential cash flow by marketing reach such as Twitter as opposed to a long, formal business plan,” Elizabeth says. “The second disruptor is the speed and ease of the application and use of the line of credit. I don't see why someone would go to a bank for additional financing when they can just go on a website, hit a button, and have the line of credit and cash appear in their bank account in a few days.”