Following the 2008 financial crisis, traditional commercial banks further tightened their credit restrictions on small and mid-size businesses. At the same time, advancements in technologies opened the door for new innovative financial products and solutions to be developed. Fintech companies began to gain market share and compete against established commercial banks for SMB lending.
The business and economic disruptions of the 2020 pandemic accelerated the acceptance and popularity of tech-enabled lenders to new heights. Fintech companies became more prevalent as more advanced financial technologies entered the market. Tech-enabled lenders became a mainstream financial option for fast, flexible funding to support business development. Today, entrepreneurs, start-ups, and other under-capitalized businesses respond quickly to market conditions and growth opportunities by working with tech-enabled lenders to get the capital they need when they need it.
And it’s not just the businesses that have benefited from the growth of fintech. Commercial loan brokers have also discovered the benefits of working with tech-enabled lenders to service their clients while providing easy-to-manage revenue sources to grow their broker business.
In this article, we explore lending features to compare how tech-enabled alternative lenders stack up against commercial banks to benefit commercial loan brokers and help grow their portfolios.
Benefits of Working with a Tech-Enabled Lender
Before the arrival of tech-enabled lenders, businesses without a solid credit history or collateral were largely ignored by conventional lenders. This left loan brokers with few options to find lenders willing to take on undercapitalized SMBs. Today, it is an entirely different story.
Thanks to technology advancements, fintech has contributed to the transformation of the lending landscape. Now tech-enabled lenders have removed many of the traditional barriers to credit and have introduced new, more flexible products to serve client needs better. Let’s take a closer look at five of the most significant features of a loan to illustrate the benefits of working with a tech-enabled lender to grow your broker business.
Commercial Banks: The credit crisis of 2008 deepened banks’ resolve to limit their risk exposure. As a result, banks increased qualification requirements for commercial loans. Without a high credit score, a history of healthy financial performance and sufficient collateral to secure the loan, few SMBs could quality for bank lending. Commercial loan brokers needed to find alternative lenders willing to fund small and mid-size businesses in this restrictive lending environment.
Tech-enabled lenders: Fintech companies use technology to quickly conduct a deep dive into credit information, quantify business opportunities, and streamline the underwriting process. The qualification process takes just a few days to complete allowing brokers to rapidly assess viable funding sources and respond quickly to new business opportunities. This background research provides the precision needed to evaluate the most accurate determinants of creditworthiness, allowing fintech companies to approve more loans to more businesses significantly quicker than any commercial bank can manage.
Broker benefits: more loan approvals equate to more opportunities and more revenues to grow your broker business.
Speed of Funding:
Commercial Banks: The banking system is heavily regulated and often utilizes legacy-based technology systems that slow the speed of funding. Lengthy qualification periods and limited money transfer systems impede fast funding.
Tech-enabled lenders: Your clients are looking for funding solutions to solve a problem or invest in a growth opportunity. They can’t afford to wait months or even weeks for loan approvals. Fintech companies can qualify most businesses in a few days. Transportation companies can be qualified in a few hours. Account setup and onboarding are fast, with the first funding available immediately after. Advanced technology allows funds to be requested and transferred in minutes.
Broker benefits: Fast qualification allows commercial loan brokers to close deals quicker and arrange immediate funding to create a positive customer experience.
Flexible products and services:
Commercial Banks: Bank financing is generally governed by financial covenants that restrict further borrowing, how the funds can be used, and require the borrower to maintain specific financial ratios. These covenants and continuous bank oversight tightly control the borrower’s ability to stretch and grow the business.
Tech-enabled lenders: Utilizing advanced technologies and innovations, a lender can deliver multiple loan offers in real-time and enable applicants to tailor terms to meet their needs. With fewer and less restrictive covenants, alternative lending allows the borrower to utilize funds however best suits the company.
Broker benefits: Flexible funding products and services provides more opportunities for more business.
Capital management control:
Commercial Banks: Regular reporting and audits provide the bank with heavy oversight to monitor how funds are used and how well the business is maintaining financial performance. Ultimately, the bank, not the business, controls the working capital management of borrowed funds.
Tech-enabled lenders: Alternative lenders leverage technology to transfer funds into customer accounts in real-time seamlessly. Borrowers have access to their accounts 24/7 via an online portal. Once funds are in place, customers have the freedom to transfer, withdraw, or spend money at will.
Broker benefits: Providing customers full control to manage their funds allows them to grow their business and take on more lending products and services – more revenues for your brokerage.
Commercial Banks: Banks are engaged in the process of credit creation – expanding the deposits they receive through loans. Their expertise is focused on regulatory compliance and account management to grow the bank’s portfolios and increase profits.
Tech-enabled lenders: Working closely with borrowers to ensure continuous access to working capital, alternative lenders keep an eye and ear on the industries they serve. Often specializing in specific industries, alternative lenders accumulate experience, knowledge, and technologies to better understand trends, efficiencies, and best practices. Brokers and their customers benefit from consulting with tech-enabled lenders to develop financial strategies and maximize profitability.
Broker benefits: In-depth business knowledge helps develop positive customer relationships and positions your brokerage as a reliable and relevant industry expertise source.
Many banking technology systems have been running for more than 30 years. It is estimated that over $3.5 trillion passes through legacy systems every day. Changes, updates, and replacement solutions to these systems risk introducing defects and potential vulnerabilities. With so much money relying on legacy technology, it is understandable why commercial banks are slow to revitalize their systems.
On the other hand, alternative lenders have embraced new and evolving technologies. Tech-enabled lenders constantly develop and improve digital platforms to offer more money and faster access with less hassle to give customers more control over how they receive their money and when they spend it. These customer benefits translate to growth opportunities for commercial loan brokers who work co-operatively with tech-enabled lenders.
Tech-enabled lenders provide high commissions, growth opportunities, and expertise to help commercial loan brokers grow their businesses. Brokers should take the time to interview lenders and be selective when choosing referral partners to work with. Learning how to choose high-value lenders that will close deals and help build your business is a fundamental first step for new and growing commercial loan brokers.
Since 2006, eCapital has been a trusted financial partner for thousands of small to mid-size companies and commercial loan brokers. As a leading industry innovator, we integrate emerging technologies with a forward-thinking approach to solve business problems and get the deal done. eCapital shapes customized funding facilities to meet the working capital needs and cash flow requirements specific to your client’s business needs. Our customer base continues to grow as our reputation for fast, reliable funding, dedicated service, and high commissions to referral partners endure.
To learn more about building steady revenue streams to build your commercial loan broker business, visit eCapital.com