This article discusses fintech’s impact on small business loans. Lenders using fintech have faster ways of assessing a business’s credit worthiness by using digitized information such as a small business’ QuickBooks account. Thus, small businesses are more likely to receive a loan and receive it quicker than using a traditional bank. Fintech lenders can also offer smaller loans because they don’t have the same entrenched costs as banks. It is also easier to find customers with the rise of online brokers or lending platforms.
However, these lenders make the loans profitable by charging high interest rates, usually over 50% APR. Experts at Harvard Business School are pushing for current lending regulations to be extended to fintech-based lending institutions and brokers. Enforcing the same regulations would require disclosing fees and interest rates. This may make these loans less attractive. If lenders have to lower their interest rates significantly, they lose the ability to offer small loans. While I can see the desire to keep small loans available, transparency in the process will be more beneficial in the long run. Borrowers will budget more efficiently if they have accurate fees calculated. They are less likely to default if they know what they’re agreeing to in advance. Having regulations extended ensures that small businesses and lenders are on the same page.