When Way Zen walked in the door of our Small Business Solution Center in Lower Manhattan, she was looking for ways to expand Jsong, her design and wholesale textiles company. She didn’t know where to begin. She needed guidance on how best to prepare her business to apply for and receive financing, plan for scale, and transition into retail. We see stories like this in our work across the U.S. Small business owners consistently need support in three areas:

  1. Access to capital: limited access to flexible or affordable capital
  2. Access to customers: insufficient networks to reach customers, especially as advances in technology have created a digital divide between the haves and the have-nots
  3. Access to services: a disconnected system of resources coupled with a lack of industry specific services and support

Fulfilling each of these needs for small business owners is complicated. Technology can cut across all three, providing infrastructure and a new approach to existing solutions. Recent research shows that digitally advanced small businesses earn twice as much revenue per employee and experience higher revenue growth when compared to companies with low levels of digital engagement. Yet, almost 80% of small businesses are not utilizing the digital tools at their disposal.

That high rate of under-utilization presents an opportunity for Fintech to expand the market and provide small business owners with the types of services they need. 66% of small business owners would consider switching to a competing banking service, for example, if a provider offered products to help them better manage and grow their business. Of that 66%, more than half would switch to a non-bank alternative for the same reasons.

In fact, large commercial banks serve relatively fewer small business clients today than they did 15 years ago, and Fintech has stepped in to fill the void. These firms have increased overall access to capital for business owners by lowering the barriers to entry through a more streamlined application process, a simple user interface, and a fast decision-making process. Already, more than one-quarter of small businesses are using alternative online lenders. But entering the market so quickly has created additional challenges, most notably high APRs and a lack of transparency.

As their market share and portfolios grow, Fintech needs to do more than just provide capital to borrowers. Here’s what we think is needed to serve small businesses better:

1. Innovate underwriting and develop new products

Most small business lenders still evaluate credit the same way, leaving an opportunity to innovate how to underwrite borrowers. By broadening their evaluation methods, online lenders can offer loan products with non-traditional terms to fill the gaps and attract new borrowers.

2. Focus on one of the fastest growing markets – underserved small businesses

Small businesses are starting and growing at faster rates for women and people of color. These two groups suffer higher than average credit denial rates and tend to have weaker networks for support and services, providing an opportunity for Fintech to acquire customers in fast growing segment of business owners.

3. Take a customer-centric approach to small business growth

Small businesses need more than just capital. They need connections to customers and services, both of which Fintech can provide.

4. Form partnerships

Fintech and other related service providers in the small business market are not yet coordinating to serve small business needs. Fintech can lead the effort to form partnerships, with business service organizations for example, and be a connective tissue between small businesses and the resources they need.

5. Diversify capital sources by focusing on mission

Mission and impact investments continue to attract investors looking to fulfill a double bottom line. Online lenders can lead with a mission to grow small businesses by lowering their cost of capital, and in turn attract investors who are demanding their capital be invested for both financial and social return.

The Fintech industry needs to approach these opportunities with the talent and energy that they have used to disrupt traditional lending. The more that these firms plugin and invest in servicing the small business marketplace, the more they can grow their revenues and contribute to a more inclusive US economy.