Online Small Business Funding Picking Up, Human Touch Still Key

Thanks to innovations in financial technology, small businesses today have many options for small business funding.

Online applications are making it easier for small businesses to apply for funding, and new technologies are making it easier for funders to process applicants and make informed decisions.

Small businesses are gaining faster access to flexible funding options and lines of credit, all without ever having to deal with a bank. JustinLeto, CEO of Idea Financial, told deBanked, a financial news source, that the rate of small business funding picked up in December of last year and is carrying over into 2019.

Idea Financial Sees High Volume of Responsible Borrowers

As Leto revealed to deBanked, Idea Financial’s average borrowers are accessing lines of credit ranging from $100,000 to $150,000, but rarely use the full amount. He said they use percentages of the line of credit over time for various projects and then quickly pay it back.

All this makes sense for Idea Financial’s borrowers from a strategic perspective: they only pay interest on what they use (not the full line of credit), and are never charged for paying back their loans early.

“I think that’s a sign of a responsible borrower,” Leto told deBanked, emphasizing these borrower habits reassured him about the health of the economy overall.

Humans Still Key to Small Business Funding in the Digital Age

One reason for the speed at which emerging online funding companies can offer faster access to capital for small businesses is due to new financial technologies. These technologies leverage Artificial Intelligence (AI) and large data sets to automate and refine all or part of the decision-intensive process of underwriting.

When an institution underwrites a loan, they take on the risk of lending to a certain borrower based on evidence to suggest the borrower will pay back the loan. In the past, this required a lengthy, extensive human review of credit scores, business types, and other data points.

Now, machines can quickly assess large quantities of data and reliably inform major lending decisions. They can help lenders determine terms, rates, and amounts for a deal.

Idea Financial CEO Justin Leto told deBanked that while his company uses AI, underwriting requires a human touch.

“Human underwriting is still a critical part of funding,” Leto told deBanked. “There is an art to underwriting. It’s not just a science. It can’t be cookie cutter.”