Traditional banks, credit unions, and other non-banking financial institutions have been adopting new technology advancements and software developments mostly created by fintech startups. This phenomenon is rapidly changing the global lending landscape. Today, lenders are utilizing data and technology with the help of fintech to streamline the underwriting process, provide customized loan products, and make better lending decisions. Here are three important ways fintech has changed the lending service industry and how traditional lenders can keep up. Alternative Lending Platforms Traditional lenders have low interest rates and longer repayment terms, but stricter requirements for approval. Alternative lending options include private lending, crowdfunding platforms, and marketplace lending. Today, alternative lenders use innovative technology to review loan applications and provide quick and easy funding. Most small businesses can’t qualify for a traditional loan due to their poor or no credit history. Alternative lenders offer plenty of ways to obtain the capital an entrepreneur needs to grow his/her small business. They usually have simple and straightforward loan requirements and their loans come in many shapes and sizes. Moreover, they don’t only consider credit score, but also the present and future cash flow of a business when reviewing a loan application. Besides, fintech has made it possible for lenders provide loans to small businesses through lending marketplaces. These marketplaces will help small businesses to find and compare a variety of loan offers from multiple lenders. They can compare loans for interest rates, loan terms, loan amount and more and choose one that best fits their needs and budget. Easy and Fast Funding Most of the time, it can take banks and credit unions weeks to months to process and approve a loan. On the contrary, fintech lenders typically provide loans to businesses in less than 24 hours. They use the latest technology to review and process a loan application and provide customized credit solutions to their borrowers. Moreover, they only require a few of the documents such as credit score, tax returns, and bank statements rather than detailed financial statements or business plans. In addition, fintech lenders are more likely to loan small amounts than traditional lenders, which often include minimum lending terms. Moreover, they offer a variety of secured loan products that allow businesses to use their personal or business assets as collateral like their accounts receivables, real estate, or credit card sales, rather than borrowing on credit. All this helps in fast approval and funding. Use of Real-Time Financial Data Today, lenders can pull their borrowers’ data from several different sources to quickly determine how likely a business is to pay back the loan amount. With the help of a single API, the data are collected and analyzed within a few minutes to determine a borrower's creditworthiness and risk. The information can include financial, accounting, banking, cash flow, among other sources.
To keep up, lenders have begun to implement forward-looking data supported by numerous other data attributes to get a more detailed picture of a business, instead of relying solely upon the traditional FICO score. Raw data can be complex for financial institutions, financial API can help lenders display information and give them the transparency they need to assign more accurate risk. Financial technology is evolving, forcing the lending sectors to reimagine how products and services must be delivered. Simultaneously, progress in fintech is presently incorporating all phases of the borrower's venture with chatbot innovation, AI and ML, and automation, with more improvements, are standing out. Thus, by leveraging new data sets and innovation, financial institutions may be able to improve their product offerings, offer customized solutions, make informed lending decisions, and increase customer loyalty and relationships.
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