Why Small Businesses Go Online for New Loans

Accessing financing solutions through mobile applications might be the newest trend in real estate financing. The method appeals to small and emerging business owners particularly due to faster access to funds, but there's more to the story.
Victoria Treyger, chief revenue officer, Kabbage
Victoria Treyger, chief revenue officer, Kabbage

A recent study made by financial technology company Kabbage shows that the total number of loans accessed through mobile by small businesses nearly quadrupled between April 2014 and February 2018. For the same period, the total value of the loans obtained through applications increased by more than 1,200 percent. The results of the research, which included approximately 150,000 businesses, show that more and more small business owners prefer shorter, less complicated processes for accessing debt capital.

Based on the research, the company predicts that by the end of the year, 20 percent of all funding for small businesses will be made via mobile. Victoria Treyger, chief revenue officer for Kabbage, discussed the trend and the challenges it comes with.

It appears demand for working capital financing is on the rise. Does this show that it has become more challenging to operate in today’s economic environment? 

Treyger: Growing businesses are always in demand for working capital. The problem is they either can’t get access to it because there are too many restrictions or it is not set up to be the flexible capital that they need. Traditional lending methods can be arduous, taking too much time out of a business owner’s day, and still may take weeks for an approval.

Many customers choose to use online funding because of its flexibility and ability to get an approval quickly. Depending on the online lending provider, businesses also gain access to funds in non-traditional ways such as through mobile devices. Recent data shows that mobile lending is on the rise, reaching as high 17 percent of all small business loans, which is indicative of technology’s impact on the way owners run their businesses.

How does technology help you screen borrowers?

Treyger: Typically, when applying for a loan through traditional methods, lenders will ask for dated tax records and old bank statements, which are all lagging indicators of a business and how they’re performing. And if the customer needs to reapply in the future, they have to go through the entire process again.   

Technology now allows online lending solutions to use real-time business data to both provide access faster, as well as deliver a dynamic solution that can adjust based on the real-time performance of a business. It eliminates the need for business owners to continually reapply for funding. All they need to do is log on and take the capital they need.

What can you tell us about the risks connected to this very fast approval process?

Treyger: Business owners can avoid risks by working with an online lending provider that doesn’t require a business to take more than they need. The best scenario is when businesses are in control of accessing the right amount of capital they need, when they need it. We also always encourage business owners to have a clear understanding of the total cost required to access credit. Organizations like the Innovative Lending Platform Association have established a transparent standard that allows business owners to clearly see the exact cents-to-the-dollar cost associated with a loan.

Could you tell us what are your expectations from 2018 when it comes to financing businesses in real estate, given their optimism for growth this year?

Treyger: In a recent Kabbage survey of 800 small businesses, 82 percent of real estate and property management companies said they expect to increase revenues by more than 20 percent in 2018. That’s a lot of growth, and as is the nature of the business, it will require a lot of capital to get there. As homeowners and investors take advantage of the strong economy and the seller’s market, businesses will look to diversify their funding options with new financial solutions to maximize their sales price and return on investments. 

Kabbage was funded in 2009. What can you tell us about the evolution of demand for the type of financing packages it offers?

Treyger: From our first customer to today, Kabbage continues to provide a radically simple and flexible way for businesses to access capital. As of January 2018, we increased our lines of credit up to $250,000 to support larger businesses, providing greater purchasing power for more strategic investments, specialized equipment, location expansion and other larger capital needs. 

Customers provide Kabbage access to their live business-performance data—including banking data, payment processors, accounting software, shipping information, online profiles and more—to get an immediate funding decision. There is no cost to apply or annual fee to hold the line of credit. The line of credit is available to them when they need it, customers only pay for the money they take and there are no obligations.

Image courtesy of Kabbage