Small businesses find it hard and tiresome to access timely loans from the traditional banking systems. Yet tech companies have seen the opportunity of financing these small enterprises and profiting from their growth.
Why it’s necessary: Tech companies have access to important sales and customer data, which allows them to offer support platforms and introduce lending options.
- During the Covid 19 pandemic, this lending became necessary for small businesses since it became hard to access financial assistance using the Paycheck Protection Program.
- Tech companies offering merchant cash advances, for example, Square loans, have dispersed more than $9 billion in loans to small businesses and the Paycheck protection Program. These loans have benefitted close to 500,000 Square sellers with an average lending amount of $6,750.
The Bigger Pictures: Small businesses, which make up 99.9% of all US businesses, heavily rely on tech and digital platforms to reach potential customers and recieve payments.
- Therefore, Merchant Cash advances like Square, Shopify, toast, and Stripe can acquire real-time access to data on how a business is doing. Unlike traditional banks, which will have to take longer in scrutinizing a business’s operations.
Employing the Numbers: The loans offered by domestic and large financial banks are between $146,000 and 593,000. However, Tech giants are offering a bit high loan amounts.
- Tech giant Shopify capital has set their available loan offers between $200 and $2 million, while merchant cash advance platform, Square, offers small business loans between $300 to $250,000.
- According to Parafin, the financial tech startup undertaking the risk of DoorDash’s services. Says this food delivery company offers cash advances below $50,000.
Growth: Tech firm Square began offering small businesses checking and savings accounts alongside their cash advance program, capitalizing on this developing relationship.
- The electronic commerce space Shopify was among the first to offer the cash advance to its customers in 2016.
- Payment processing firm, Stripe also began offering credit loans to their clients, followed by Toast, a restaurant management platform.
Driving the news: Tech companies such as DoorDash have recently joined the lending business of merchant cash advances. This delivery company offers cash advances to their partner restaurants based on sales history and not a credit check. This technique will discourage existing partners from exploring DoorDash competitors while targeting new partners.
How it works: Small businesses can access the loan within a few days of application. They also do not require to fill endless forms of application but rather follow a digitized process.
Banks feel the pinch of tech companies’ ability to offer financial services. However, monitoring calls are unlikely to prevent big tech from dominating the finance sector because regulatory reviews are possible. Therefore, collaborating with tech giants may be the way for traditional banks to gain from digitization.
Business owners should also be keen on applying for these loans and go for amounts they can pay back because debt accumulation can bring any business down.
Author BioMichael Hollis is a Detroit native who has helped hundreds of business owners with their merchant cash advance solutions. He’s experimented with various occupations: computer programming, dog training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.