A recent article in The Globe and Mail suggests the rise of fintech companies may drive a rise in bankruptcies.
We firmly disagree.
If anything, our extensive lending experience suggests that credit cards – and not credit scoring – can sometimes lead small business owners into troubled financial waters.
Our research shows that 43% of small business owners have three or more credit cards, and that 66% routinely use credit cards to financially support their businesses, despite there being lower-cost and more appropriate options available through lending platforms like ours.
This situation stems largely from a stark reality: before online platforms emerged, small businesses had relatively few legitimate sources of capital to manage their businesses.
High-cost credit cards are among those options.
In fact, small business owners regularly receive pre-approved credit cards, for which they may not have actually applied, with credit limits well beyond their actual needs. Many cards carry high rates, with almost infinite pay-out periods.
Some entrepreneurs use these cards, certainly.
But in so doing, they are forced to juggle multiple payment terms and interest charges, while taking valuable time to sort it all out every month. These are costly distractions for time-starved owners with businesses to run.
The article also suggests online lenders have deficient credit checking approaches.
That’s categorically not true for us.
Our two most senior managers have over a combined 60 years of lending experience. We understand the five “Cs” of credit and how they’re applied. We use them to guide our decisions, bringing additional rigour to our adjudication process through technology.
What’s more, applicants to Lendified spend more time moving through our fraud checks than they do inputting information related to their business requests.
We often say it takes 15 minutes to say yes and 45 minutes to say no. That’s because we take time to tell applicants why they’ve been declined. And we guide them on how to improve their financial position.
It all comes down to knowing our clients.
We want to know what their accountant thinks, how their money is being spent, and what they’re doing about their credit card debt, for instance.
The truth is that if banks didn’t issue multiple credit cards – thereby providing the lure of easy-if-expensive credit – then many entrepreneurs would look no further than their banks for loans.
But that’s not the case for a growing number of small business owners.
Our loan applications have increased every month since Lendified started lending.
These applicants all have deposit accounts with banks. And we encourage that.
Indeed, our marriage of ingenuity and technology, not to mention our lending criteria, is as robust if not more so than what you find in a bank branch.
The bottom line is we combine discipline with pace in serving the needs of small businesses.
And as our experience proves, this approach highlights the value of fintech lending platforms.