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:
- Access to capital: limited access to flexible or affordable capital
- 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
- 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: