Small business lending and the way that Canadian small businesses borrow has changed significantly in the 21st century – especially in recent years, thanks to emerging financial technology and the proliferation of online loans. While FinTech startups have already impacted the financial services industry with disruptive services spanning small business loans, mobile payments technology, cyber currency and more, the space is still relatively misunderstood by many.
Here we explore some of the facts and myths around the online lending space in Canada, addressing (and debunking) some of the top misconceptions that we encounter in the field.
Myth 1: Securing Small Business Loans is a Difficult and Time Consuming Process
In the past, the process of getting a small business loan was a tedious and time consuming one. You often had to make numerous appointments for trips to the bank before finding out whether you qualified for a loan. This could be especially tough for small business owners and entrepreneurs who are already putting in long hours. Today, busy small business owners and entrepreneurs have a plethora of options aside from the old standard process through traditional banks. With the advent of online borrowing, small business owners can now apply for loans online, find out within minutes if they are approved, and gain access to capital as early as the next business day.
Myth 2: Online Lending is Unregulated
We sometimes hear from those who aren’t familiar with Canada’s fintech space or the regulatory body here that online lenders are not regulated and therefore operate like the “wild west.” This couldn’t be further from the truth. While fintech and startup companies are subject to different regulations from the big banks that allow them to be more innovative and better serve small businesses, there are certainly boundaries in place designed to protect consumers, small businesses and fintech service providers. In fact, regulators are increasingly recognizing the need to adapt and tailor regulations to keep with innovative financial technology. The Ontario Securities Commission recently announced LaunchPad, a hub specifically for working with and fostering the growth of fintech companies.
Myth 3: Online Small Business Loans Are Not Safe
We understand – the online lending space is still fairly new and some predatory lenders in the early days may have given the industry a bad reputation. But we have come a long way. As mobile and online banking and payments systems are increasingly becoming the norm, the same will be true for online lending. As technology improves, so does the online security software and practices. Credible online small business lenders have developed secured platforms to ensure all the information you provide for the purpose of credit assessment are kept confidential and only utilized for the purpose of assessing your credit. Of course, not all service providers uphold the same standards. It’s important to only do businesses with credible online lenders. Look for reviews, media mentions and team bios to get familiar with the company you are borrowing from.
Myth 4: Only traditional banks offer affordable loan rates
For many years, there were few options that existed in the wide gap between traditional bank loans and payday loans – “predatory” lenders that offered loans to those with bad credit at abhorrently high rates and inflexible terms. But now, there are increasingly affordable loans available quickly through online lenders that often start as low as five or six per cent. Online lenders may have more flexible repayment terms than traditional banks as well. For instance while some lenders penalize you for making early repayments, online small business lender Lendified allows you to chose your own repayment terms and early repayments are never penalized.
Myth 5: Online loans are for emergencies only
For some out there, the perception is that small business loans – and online loans in particular – are meant for situations where you or your business are in some sort of “trouble” or crisis. While it is true that online loans are great for such situations – such as a loan to replace equipment, a debt consolidation loan or a loan for cash flow crunches – we’ve seen just as many small business people utilize online small business loans for the purpose of investing in their business growth, using the funds to capitalize on business opportunities that won’t wait for a lengthy, traditional application process.