Fintech helps bring financial services to more small businesses

Despite their vital role in the economy, small and medium-sized enterprises are too often underserved by financial industry. An expert panel at BBVA’s Fintech University showed how to address this challenge.

BBVAOpen4U
|
11 Nov. 2016

Small and medium-sized enterprises, or SMEs, are a critical market. The Office of the U.S. Trade Representative has called them the backbone of the economy in the United States.  BBVA recently convened an expert panel at BBVA’s recent Fintech University in San Francisco who discussed the topic in a refreshing, thoughtful dialog. The panelists included Farhan Ahmad, Founder and CEO of Bento for Business; Jorge Sun, CEO and Co-Founder of LendingFront; and Evan Singer, CEO of SmartBiz. If your company isn’t currently addressing the financial needs of small businesses, you may be missing out.

What challenges are unique to SMEs?

Despite their vital role in the economy, SMEs are too often underserved by financial providers. Traditional financial institutions can be reluctant to lend because the loan amounts are small and the flow of activity can be inconsistent. When coupled with traditional underwriting processes that require a great deal of documentation, banks often find lending to SMEs cumbersome, costly, and inefficient.

SMEs are an attractive market. According to the U.S. Small Business Administration there are over 28 million SMEs in the United States. Two out of every three jobs in the country are created by small business, and small companies produce 16 times more patents than larger ones. However, despite this opportunity, fintech companies may lack the infrastructure, capital, or expertise to address SMEs unmet needs.

How can fintech help address this challenge?

One of the key points from the panel was that fintech companies can be the bridge between the SME and the bank. Fintech entrepreneurs can concentrate on serving SMEs with innovative product and service offerings. They don’t have to replicate capabilities that they can easily acquire.  In serving small businesses, “banks have a regulatory advantage, but we provide the technology and transparency,”  noted Jorge Sun. APIs enable fintech companies to leverage a bank’s infrastructure and know-how. This means fintech can focus on creating an improved experience for small business customers.

Fintech companies have the tech to streamline lending processes. Depending on who funds the loan, this can help banks as well. A bank partner that contributes capital may find that working with a fintech is a more efficient way to participate in the small business market.

Several fintech lenders focused on the small business segment operate as marketplaces. If they can create relationships with multiple banks, they increase their odds of finding the right loan for a particular SME customer. In turn, this means more loans can be successfully closed—and it benefits the fintech, the bank partners, and the SMEs. The path to success is helping SMEs take out loans quickly, securely, and easily – which many of them desperately need.

Additional insight from the panel

The panelists agreed that the mission – helping small businesses thrive– could be as important as the economics.  

They discussed some of their proudest moments. Evan Singer detailed how SmartBiz helped a small business that was turned down by three different banks and was worried about going out of businesses. SmartBiz was able to get them $350,000. “The businesses that we’re able to help are so over the moon thankful and gracious and appreciative because I think they feel somewhat abandoned in the market today” he said.

Key Takeways

  • There is a huge demand for small business loans, and fintech offerings are addressing a current gap
  • Fintech partnerships are a two-way street, and may help traditional banks to lend more
  • Banks’s can greatly expand their small business lending without having to invest in new technology or more staff

Underserved SMEs are eager for new ways to obtain much-needed capital. Fintech entrepreneurs who use bank APIs are uniquely positioned to accelerate their progress in bringing these new lending solutions to market.  

*This article is one in a series from BBVA about the latest in Fintech and banking.

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