Online lenders step up to fill vacuum left by banks during pandemic | Genetic marks
OOnline loans have been a controversial topic over the past few years. And with good reason. The industry, led by well-known names such as Fundbox, Balboa Capital and Lending Club, is frequently criticized – rightly – for the very high interest rates it charges on the loans it offers. When I say high, I mean…high. As much as 99% per year, depending on funding provided. And no, I’m not kidding.
Whether or not you want to argue the merits of these companies, and you should, as always, keep an eye out for the fine print, there is definitely one thing that is not up for debate, and that is how these lenders have stepped up to fill a critical need during this pandemic, as our banks – especially our big banks – have dropped the ball.
I’m talking about stimulus funding available through the Paycheck Protection Program — the Forgivable Loan Program that is part of the recently passed Cares Act. Banks are expected to be integral to the success of this program. Instead, they were a hindrance.
“Banks are playing games on loans, leaving small businesses out in the cold,” Mark Cuban said in a recent interview. “They put up all these hurdles that weren’t supposed to be part of the program.”
Cuba couldn’t be more specific. Big banks have been slow to respond to the needs of many desperate business owners in the wake of the pandemic, with some capping funds and others imposing new rules and regulations far outside what the government had intended.
But online lenders have also had the opportunity to provide these loans. And they do a better job than the banks. Why?
The reason is related to technology. While banks have been notoriously slow to upgrade their systems and adopt the latest financial technologies, today’s leading online lenders have built cloud-based platforms and scalable infrastructure designed to do just that. what the Treasury and the Small Business Administration need right now: managing lots of data and doling out lots of money.
“Our technology is specifically designed to process thousands of requests in minutes,” says Sam Taussig, global policy manager at Kabbage, one of the first online lenders to jump on the bandwagon. “Fintech is the best tool to help the SBA in this enormous task, and we are rising to the occasion.”
I have personally tested the application process at banks and online lenders and my experience working with companies like Kabbage has far exceeded that of banks. Kabbage’s online processing for entering loan information and uploading documents is more user-friendly. Its email communications and updates are what you’d expect from a tech company in 2020. The thing is, companies like Kabbage, as well as Lendio, PayPal, Square, and Intuit, which are also part of a group of fintechs now accepting and processing payroll protection program applications, are simply more efficient than traditional banks.
It’s not as if the banking industry hadn’t been warned. For years, traditional banks have stood idly by while smaller, nimble fintech companies have built better, faster, and more reliable systems to offer small business loans, checks, and other services. banking in a much more user-friendly way, without branches and using mobile applications. .
Many small businesses, loyal to their banks and reluctant to change the way they manage their money, have resisted these fintech companies. But that perspective is changing fast, thanks to the coronavirus pandemic. Which is bad news for banks.
Indeed, these same small businesses that weren’t some of the fintech companies will now have the opportunity to get to know them better. These companies – which until recently were viewed with suspicion – are now doing what banks don’t: provide a vital service when needed. And at the same time, they introduce themselves and build relationships with thousands of potential small business customers. They stepped up when small businesses needed them most and provide superior service.
As of this writing, funds for the first round of the Paycheck Protection Program are running out. If you own a small business and need that money, don’t be discouraged. I am quite certain that more will be provided in another stimulus bill. So go ahead and request the money you need. But don’t go to a bank. They don’t want your stuff. Go to an online lender instead. So far they have shown that they do.