Are you offering your SMB customers lending? Here’s why you should.

The Big A.S.S lenders, Amazon, Shopify, and Square, are three of the largest small business (“SMB”) financiers in the country. If you offer eCommerce, Supply Chain, Payments or Point of Sale solutions to SMB customers and do not also have a lending arm, you are at risk of losing clients.

Small business struggles

Access to capital is one of the major challenges for small businesses across the country.

Did you know that only 2.7% of loans to small businesses are funded by the SBA?

As a result, small businesses seek capital from banks and alternative lenders. These two solutions have been historically unreliable, slow, and at times very expensive. Worse, community banks and thrifts have been consolidating or folding during a low yield environment reducing the already limited credit options for SMBs.

SMBs need better solutions to finance their growing businesses.

Tech fills the gap

The challenger banking model, a b-school buzz word that loosely translates to “technology companies now lend,” has been a largely successful alternative to traditional banking.

One of the keys to success is, of course, the data.

Technology companies, perhaps even like the one you work for, hold some valuable data about the performance of their business customers. Point of Sale companies can track, in real-time, revenue of a business. ERP/Inventory management companies can see the evolution of order sizes and SKUs sold. These are great barometers for the success (read: credit risk) of a small business.

Data becomes the ultimate form of collateral.

The Big A.S.S lenders, and many of their smaller competitors, have invested heavily to build sophisticated systems that, securely and simply, allow their customers to leverage their business data to get quickly qualified for funding. The platform gets an additional revenue stream and the customer receives instant capital to plow back into the business. Laymen refer to this as a win-win.

The business case

The reasons to offer lending extend beyond just additional revenue and happier customers. Adding a financing solution to your technology service has become more than just a trend — it is approaching default behavior.

Small business customers may now expect their technology vendor to offer some form of financing product.

Importantly, software companies that offer these lending solutions are winning business over competitors. Even customers that do not currently have borrowing needs are sorting based on this added service assuming they eventually will need it!

Getting started

Creating a small business lending division requires a serious investment. Specialists are required to build the application and underwriting processes, price the credit, manage the balance sheet and handle collection.

If you are considering bringing this process in-house, be prepared for a 24 month rollout and a minimum $2,500,000 investment (not to mention credit losses in your first 12 months of operations).

Alternatives exist to get operational in just a few minutes. Lendica, a truly embedded financing platform, offers an industry leading, full-service lending application that is installed in seconds. Lendica provides the underwriting software and capital to fund the deal which means your customers can get funded instantly. Technology vendors can now generate incremental revenue while providing a value-add service that their customers will soon expect — all with just a few lines of code!

As small businesses continue to seek alternative sources of financing, they will increasingly turn to their technology vendors to help with bite-sized funding solutions. Now is the time to fight back against the big A.S.S lenders and offer them yourself!