As Online Services Associate at The Receivables Exchange, Mariah Courtney is responsible for managing various social communities by developing social media programs and cultivating relationships with customers and potential partners. You can connect with her via Twitter, LinkedIn, and Google+.
My grandmother has used the same bank for most of her adult life. She’s visited the same branch faithfully for the past 30 years to deposit checks, take out cash, and chat with her favorite tellers about her grandchildren. She called me confused when they sent her an ATM card in the mail around 15 years ago. I explained that she could now take money out from any ATM in the world with just her card and a passcode. I later found that card in a kitchen drawer with the activate sticker still on it. She didn’t want to use the ATM. It was too impersonal and felt unsafe.
Many small business owners can probably relate to my grandmother’s relationship with her bank. For as long as anyone could remember, the community bank was where you went to get a small business loan. You knew the name and phone number of your loan officer and there was a branch right down the street, just in case. Now, small business financing is evolving at breakneck speed. The traditional community banking relationship is becoming less important as innovative online lending solutions become more prevalent. There are two primary reasons for this. First is the banking industry’s reaction to the recession and the second is technology.
You see, banks took customers like my grandmother and small businesses for granted when the economy went kaput in 2008. They severed lifelong relationships and froze out potential new customers with their refusal to lend to small business owners. And when they did that, emerging financial technology companies were quick to fill the capital needs of former banking customers – more efficiently than the banks ever had. Fast forward five years to a lending environment where incredible technological advances (and some very creative business models) are making financing more accessible than ever for small businesses at every stage of growth; from startup to expansion.
Entrepreneurs have perhaps benefited the most from new financing technologies. Angel investing (traditionally when wealthy benefactors invest in businesses in exchange for equity) is at an all-time high with a new emphasis on online Angel networks. And crowdfunding platforms like Kickstarter and CrowdFunder have emerged as an easy (and effective) way for entrepreneurs to raise funds through donations by pitching their business ideas to the public. If the JOBS Act passes through Congress this year, crowdfunding and Angel investing will start to look very similar as the general public will be able to invest in startups in exchange for equity.
For more established small businesses that need financing in order to maintain a healthy cash flow, alternative lenders have taken center stage. Non-bank lenders are using online technology to approve small business loans faster than ever and are making decisions based on different criteria than traditional bank lenders. One is even using applicants’ social media activity as a factor in determining creditworthiness. Invoice financing has long been a great way for small business owners to turn their unpaid invoices into cash and new technology is making it easier than ever. One innovative invoice financing model is an online marketplace created by The Receivables Exchange. Peer to peer lending is growing via online platforms that allow businesses from around the country to directly invest in and borrow from each other.
Technology is even changing the way small business owners manage their account receivables. Many business owners have traditionally done business via cash or check (and were therefore dependent on their local bank branches). Online payment platforms are allowing small business owners to accept credit as payment and send electronic invoices – all from their computers. This is speeding up the payment process and helping small business owners keep finances organized.
My grandmother continues to resist technological advances and remains steadfast and true to her local bank. The relationship works for her needs. But small business owners have more options than ever when it comes to financing. And in my opinion, that’s a very good thing.