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While attending this year’s Lendit Fintech Conference in San Francisco, I bumped into Karen Mills, former U.S. Small Business Administrator and senior fellow at Harvard Business School. We’ve participated on a few panels together and gotten to know each other over the years. Mills had just released her new book, “Fintech, Small Business & The American Dream.” She handed me a special signed copy and said, “Pay close attention to chapter 8!”
That night, I thumbed through the pages and found the chapter she was referring to: “Technology Changes the Game: Small Business Utopia.” Here, she outlines the potential “golden age” of small business financial services that fintech innovations could deliver. If you only read one chapter (though I recommend the entire book), make it this one. Mills pinpoints three factors she deems necessary for achieving Small Business Utopia, and she also explains why she believes these three things are within reach.
- Technology will need to make information streams about small businesses more readily available. Tech will also need to integrate these information streams in ways that illuminate a small business’s financial health and future needs.
- Credit or other appropriate loan products need to be made easily available to small business owners.
- The new environment must be built around the needs of small businesses, not a consumer concept simply modified for small businesses.
When I look at the current small business landscape and take into account some of the changes we’ve seen over the past decade, I can understand why Mills believes small business utopia is well within reach. I too believe we can get there, but I also know that as a small business financing industry, we have hurdles to overcome. From my point of view, three potential fintech innovations stand out as the game changers that will lead entrepreneurs into the golden age.
- More Connected Fintech Platforms
Even in a strong economy, cash flow is a major concern for small business owners. A recent Lendio survey of 550 small business owners confirms this. Respondents ranked cash flow as one of the biggest challenges they face this year. Additionally, Lendio has found that two-thirds of micro-small business are not leveraging any online accounting software. They’re using spreadsheets, pencils and paper or they’re not keeping up the books at all.
I wholeheartedly agree with Mills that If we are going to achieve any sort of small business utopia, we need fintech platforms that will aggregate disparate sources of financial information (including cash flow, loan and credit data). We need platforms that give business owners more accurate, real-time insight into their business finances. But these platforms are nothing if business owners aren’t willing to embrace this kind of tech. They must realize that visualizing their cash position, better understanding their financial health and better predicting their future capital needs is just as important as any other aspect of running their business successfully.
Mills uses the term “illuminate” to describe what this kind of technology can do for small businesses. As an industry, I believe we’re extremely close on this front. We have more small business data at our disposal than ever before— bank account, accounting, credit card, merchant services—but it’s not all tied together in one convenient place. When that kind of illumination happens, fintech platforms will play a huge roll in driving small businesses toward utopia.
- ‘Always On’ Loan Applications
I recently talked to one small business owner about his financial challenges. When he started his business six years ago, he had to go out and inquire about loans from various banks and online lenders. If you’re a small business owner, you know that means filling out numerous applications and then waiting weeks to hear back about each one.
But now that his business is more established, this owner says he gets calls and emails from lenders nearly every day. His mailbox is full of offers from lenders that have access to bits and pieces of his financial information. Even his primary bank is aggressively sending offers for loans and lines of credit, promising a quick turnaround. But these are still nothing more than solicitations to fill out an application for a loan.
My version of small business utopia is a place where the loan application is always on. Instead of receiving an offer to apply for a loan, business owners would get a notification alerting them how much money is available to be transferred to their account, should they want to use it. Lenders would have immediate access to all the necessary data, and the hassle of requiring an owner to submit an application would end. I believe this is the solution to Mills’ requirement that “credit or other appropriate loan products need to be easily available to the small business borrower.” Many fintech providers have made great strides in this direction, but banks, especially smaller regional banks, are way behind in this category of innovation.
- Different Experiences for Each Customer: High-Tech and High-Touch
Digital lending has exploded in the last few years thanks to high tech innovation. OnDeck’s platform looks beyond a small business owner’s credit score to offer more flexible and efficient financing solutions. Square offers quick funding solutions to clients with an easy auto-deduction payback platform. Kabbage now gives business owners a Kabbage Card that expands cash flow with a simple line of credit based on current monthly revenue. QuickBooks provides customers loans based on their credit, bank accounts and revenue over the last year. PayPal’s LoanBuilder offers business customers a choice of a working capital loan or a business loan with funds available the next day. Plaid, which announced a $250M funding round in late 2018, integrates with more than 10,000 banks and connects approximately 20 million consumer accounts via apps like Venmo and mobile investing app Robinhood.
These high-tech financial solutions are moving small businesses closer to utopia. But not all small business owners prefer a wholly automated experience. As 80s rocker Rick Springfield once sang, “We all need the human touch.” A large percentage of business owners require or prefer more education, more advice or just more human interaction during the borrowing experience.
The point is that fintech companies have an opportunity to allow the customers to choose the experience that they prefer: high-tech or high-touch. To best serve small businesses, financial solution providers will need to find a way to blend their new-age technology—the tech that makes accessing credit quick and easy—with the human touch. Having access to a friendly voice (or face) that can answer their questions gives small business borrowers more confidence to make important financial decisions, and in turn, grow their operations.
In a Perfect World
In my mind, small business utopia isn’t some magical destination, but a constant evolution of tools and services that change the way business owners spend their time. Instead of having to consult multiple sources of information to monitor cash flow, key financial accounts and merchant service accounts, those sources are pulled together through more connected platforms. Instead of wondering or worrying where their business stands financially, business owners will have bigger picture views. Instead of spending time filling out loan applications, business owners will know exactly how much they qualify for at any given time. Instead of talking to bankers and digging for information online, human consultation will be integrated into high-tech solutions to give business owners more peace of mind.
Only when small business owners have access to these three critical fintech innovations will they find the utopia they seek. No, the golden age for entrepreneurs hasn’t arrived yet, but yes, it is well within reach.
July 13, 2019 at 06:06AM
Forbes – Entrepreneurs