Traditional bank loans use to be one of the only games in town when it came to funding a business. But only a select few businesses ever qualify and it takes a long time to get approved.
Freedom Debt Relief points out that fintechs have been changing the business funding game by offering many alternatives to traditional bank loans. Fintech stands for financial technology and represents a group of usually smaller firms focused on solving a specific aspect of the financial services industry through technological innovation.
In this article, we’ll see how Fintechs are expanding the number of business funding opportunities available on the market.
The Rise Of Fintechs
During the financial collapse of 2008, banks begin falling like dominos. Once some form of financial stability began to emerge, the bank lending environment had completely changed. Bank regulations were more restrictive as was bank lending. Businesses found that getting any type of loan from a bank was next to impossible.
While the lending environment was restrictive, it also created a hole in the financial services industry. Specifically around personal and business lending. Small companies begin popping up offering faster financial transactions and access to funding. They were not traditional banks but instead technology companies steeped in financial services. Enter the fintechs.
Freedom Debt Relief notes that with the large growth and investment funding that has poured into fintechs over recent years, banks have been getting in on the action. Either through acquiring fintech firms and integrating their technology or through in-house development.
Categories Of Alternative Funding Provided By Fintechs
There are a number of financial services categories that fintechs fall into, including the following:
¥ Personal Finance
¥ Retail Investment
¥ Equity Financing
¥ Institutional Investment
¥ Consumer Banking
¥ Banking Infrastructure
¥ Financial Research Data
The above list is not exhaustive but as you can see, fintechs are everywhere. Fintechs are even integrated with the SBA to speed up approval and funding of SBA loans. Traditionally, SBA loans go through a local bank and the overall process can take weeks. The SBA has obviously seen the value provided by fintechs and has decided to streamline its process. Applicants can now qualify for an SBA loan in a matter of minutes and receive funding in 7 – 10 business days.
Within the lending category, fintechs provide invoice factoring, cash advances and lines of credit services. All services that have been traditionally provided by banks and other financial companies. The advantage fintechs have is speed of approval and time involved with getting funded.
Players In the Industry
We’re now going to look at top fintechs within various categories of the financial services space.
Kabbage – Basically a line of credit. They provide loans up to $150k. Businesses can qualify within 10 minutes. Loan terms are 6 to 12 months. Your able to use the line as needed. Pay it down then come back anytime and draw on it again.
Fees range from 1.5% to 10%. Kabbage offers a transparent fee structure, which allows business owners to check what rate they might get before actually applying.
To give you can idea of how their fee structure works, the following amortization table is for a 6 month, $10,000 line at 4%:
Month Principal Fee Total
1 $1,667 $400 $2,067
2 $1,667 $400 $2,067
3 $1,667 $100 $1,767
4 $1,667 $100 $1,767
5 $1,667 $100 $1,767
6 $1,667 $100 $1,767
Total $10,000 $1,200 $11,200
As you can see, months 1 and 2 have the highest fee. Then it drops in months 3 – 6.
Shopify Capital – Funding through merchant cash advance. With a merchant cash advance, Shopify Capital purchases your future receivables at a discounted price. You then get a lump sum amount instantly. The advance is considered paid off once you have remitted the amount of receivables purchased.
Like other fintechs, the application process is entirely online and can be completed within a few minutes. Only a select few companies will qualify but Shopify Capital is working on expanding their offering to more businesses.
Because Shopify Capital is purchasing your future receivables at a discount, there is no interest rate. Instead, they are paid on the discounted difference.
OnDeck – Offers both term loans and lines of credit. Their application process is online and provides a decision within minutes. You can be funded within 24 hours. If you’d rather speak with someone instead of doing everything online, ondeck has advisors available to help walk you through the process and answer any questions.
Term loans max out at $500,000 and start at a 9.99% APR. Lines of credit go up to $100,000 with rates starting at 13.99% APR.
Fundbox – Invoice factoring with a twist. Unlike a line of credit or loan, traditional invoice factoring uses a company called the factor. The factor purchases your outstanding invoices and provides you 60% – 95% of their value as an advance. The factor then takes over collecting payment from your customers. In other words, you get immediate cash at the cost of full invoice value and loose control of collecting payments from your customers.
Fundbox approaches invoice factoring a little different. Instead of a discounted invoice value, you receive the full amount. You also still collect payments from your customers.
Freedom Debt Relief mentions that your advance is paid back weekly over 12 to 24 weeks with a weekly fee applied. To give you an idea of how this works, we’ll look at a $1,000 draw example paid back over 12 weeks:
¥ Fees start at $3.88/week
¥ Weekly repayment is $87.22
¥ Total repaid is $1046.60
Fundbox is actually using a mixture of invoice factoring and line of credit. You can continue to draw on your line based on the amount of outstanding invoices.
If you are struggling with getting your debt under control, visit Freedom Debt Relief
at freedomdebtrelief.com to get help today.