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Small Businesses Look to Fintech to Change How They Seek Financing Featured

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The rise of artificial intelligence, big data and machine learning is changing the way small businesses are doing things. Banking institutions are in a hurry to collaborate with fintech providers to find solutions that offer small businesses an opportunity to seek financing. In countries like the United States, for example, there are more than 30 million small businesses that make up about 99% of all businesses in the country. They offer employment to millions of citizens and contribute immensely to the economy. As the gig economy continues thriving, financial institutions are seeing a booming market that can generate massive returns from small businesses.

Historically, small businesses have been underserved by financial institutions. Today, technology solutions are being developed offering small businesses a way to interact with banks that in the process optimizes operations for them. Unlike in the past where small businesses were operating adequately but not optimally because of lack of credit facilities, the evolution of technology has altered many facets that small business owners experienced when using traditional loan facilities. Small and large banks provided loans with little use of technology to automate processes. This was detrimental to the growth of businesses and substantially impacted the experience of the customer.

The entry of new fintech and the competition that followed the 2008 financial crisis has spurred innovation and created an entirely new cycle of lending. This method of lending has revealed the importance of small businesses to the economy. It has emerged that technology can change the boundaries that were created by traditional processes of credit to small companies as innovations have now been established.

As the banking industry continues advancing, questions that arise are on how the lending environment will look like in future and how technology can be valuable in enabling lending institutions come up with new products and activities. Many small businesses and financial institutions are also asking themselves whether credit will be available and if companies will take advantage of this availability to better their operations.

Given these aspects, big data and artificial intelligence will be the game-changer. They will help lenders determine if small businesses are going to succeed in their operations or not by using patterns to predict the market. The success of a small business is going to determine the creditworthy and noncreditworthy small scale businesses that in the end will be of benefit to everyone. The availability of such information will give lending institutions clarity on borrowers therefore reducing risks that are associated with piling of debt. Only those who can pay back will access credit while those who will not have to find other sources of financing their operations.

In an environment where lenders have information on their potential customers, there is no gap in accessing profits for those who deserve it. This means that creditworthy businesses will not be unfairly disqualified. Small businesses that have potentially viable business ideas will access credit to buy equipment that they need to operate. It is worth noting that even though perfect information is not likely to be obtained, entrepreneurial data presented by emerging technologies in financial industry will eliminate many uncertainties and give confidence to lending institutions.

Search cost has also been a burden for many financial institutions and small businesses that need financing. By automating operations, searching time will reduce from about the previous 20 hours to a few hours thanks to digital platforms that store different information. It will also enhance transparency that is required in any industry in modern business environment.  

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Scott Koegler

Scott Koegler is Executive Editor for PMG360. He is a technology writer and editor with 20+ years experience delivering high value content to readers and publishers. 

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