By Andries Pruim
Continued lack of small business support
When I started out as a junior commercial lender, my portfolio consisted of a large number of small businesses, which in today’s banking world would not even be considered for a business loan. It was near the end of my banking career when most small business owners were transferred or referred to the consumer lending department. This meant that all credit decisions were based almost exclusively on your personal finances, with your business success taking a back seat in the qualification for financing.
This lack of accommodation for the small business community is even more apparent today, especially after the 2008 recession. Most banks talk a good story about assisting small businesses, but still focus on more medium-sized business with lending requests in the $1-million range and up. Most small businesses neither need nor want this large a loan. A majority of martial arts schools fall into this range.
In my ongoing quest to discover better ways for martial arts professionals to access financing, the new disruptor on the block, namely, financial technology businesses, or FinTechs, may be the future for our industry. Although still in their infancy, these “disrupters” could be the perfect vehicle to assist the growth of the martial arts industry.
What are they?
FinTechs are financial technology platforms that are attempting to encroach on the traditional banks’ territory, whether it be in consumer, mortgage or business finances. Almost all FinTechs are online purveyors of financial products, including small business loans, but a majority of these new digital banks are focused on the consumer market.
Most FinTechs are simple money transferrers (PayPal, for example). Others are purely mortgage facilitators. However, a growing number of FinTechs are entering the lending market. Essentially, they are online software platforms trying to convince the public to use their services in lieu of (or at least in conjunction with) banks.
Some of these platforms are P2P lenders, which means that the platform connects those looking for financing with those willing to make investments. These are not banks per se, as they are simply investors willing to risk their personal funds in order to get a better rate of return. The criteria for qualifications can be onerous and sometimes quite different from standard bank qualifications (e.g.: How big is your social media presence?).
Finally, there are the new FinTech banks. Commonly called “challenger banks,” they are sometimes better known in the U.S. as online or digital banks. They are trying to challenge the dominance of the traditional banks and are technology-driven and customer-centric “financial institutions.” Most new digital banks continue to struggle due to the highly competitive nature of the U.S. banking system.
Nevertheless, there are a number of “start-ups” that are attempting to garner a share of the sizable small business market. Some operate independently of banks but most are either derivative of the major banks or are affiliated with them in some ways. Whether it is one of these digital or online banks or a separate commercial lending platform, this new disruptor technology may be an ideal option for martial arts businesses looking for financing including equipment, working capital needs or even expansion possibilities.
These new lending-platform FinTechs will usually maintain proprietary software and machine-learning algorithms which allow them to quickly assess any credit requests. It is this use of AI and other credit assessment strategies that has allowed these virtual banks to garner a fair share of the small business banking requests.
How do they work?
The first FinTechs simply replicated the banks’ application form and put them on a website. They attempted to procure new business by expediting the opening of an account, whether it be a checking account, a credit card or even a small business loan.
While most FinTechs are not technically banks, many of them leverage a relationship with a bank in the background in order to get access to the necessary funds. Whether the FinTech maintains a relationship with a bank or is self-financing (think hedge funds), the major advantage of these new financing platforms is transparency!
New FinTechs have purposely designed their online loan applications to be as simple as possible. Most of the information they request is located on other sources the FinTechs already have access to.
In fact, some FinTechs will simply gather your bank statements and any other supplier information available to them, along with some possible social media content, in order to provide a more holistic view of your company’s financial performance. This way they can determine your payment regularity and how well you treat your suppliers, etc.
This transparency and rapid turnaround time in approvals has allowed these FinTech banks to make inroads into the various business lending areas. It also gives business owners a quick and honest perspective into what areas of their business they need to improve in order to obtain the necessary financing.
While several of the well-known “big banks” are slowly moving into this space, the innovations from the various smaller start-ups have resulted in many more financing options available to small businesses like martial arts schools. The future of these new digital financing models will be dictated by the market and the desires of the consumers, which means more options. This also means an increasingly extensive use of AI, more chatbots, and something that is now becoming prevalent in Europe: the sharing of all personal and business banking records.
How to choose what is right for you?
Since FinTechs are still in their infancy, there are a myriad of options available. As a martial arts business owner, you must decide on what your needs are for the foreseeable future, including all financing requirements.
As mentioned, there are FinTechs ‘banks’ which provide a full range of banking products as well as those FinTechs that focus exclusively on business loans. Your financing needs will dictate your choice.
If you are looking for full banking facilities, it would be best to initiate a relationship with an online FinTech lender. Some of these are actually a conglomerate of FinTechs, each with its own specialty. For example, once such entity you may have seen advertised in MASuccess is North American Bancard. It maintains an umbrella of FinTechs, including lending services, digital payment options, and standard credit card merchant services.
Otherwise, if you already have some banking services and are simply looking for some term financing (e.g. equipment or vehicle/van financing), then there are FinTechs that can provide funds with reasonable repayment schedules. Even if you are only needing a small line of credit during a seasonal slow-down (like summer), there are FinTechs that specialize in providing short-term funding (and if your handling of the line of credit is as agreed to, they will almost automatically renew your funding then next time it is needed).
Qualification for funding varies amongst FinTechs but primarily they look for three major components: your credit score (and this can sometimes be contentious, and thus has nominal value in their evaluations), how long you have been in business, and your income level. Most FinTechs will then use proprietary algorithms to pull in information from all available sources (including other FinTechs) in order to provide a qualified decision. Obviously, the more information you volunteer, the faster the decision.
One of the last considerations of these new ‘disruptors’ is the way FinTechs have revolutionized debt recovery. When the economy goes bad, and situations are such that repayment of debt can be stressful (to say the least), there are now a number of FinTechs that use algorithms and AI (as well as the rest of your provided information) to determine the best method of repayment.
Top Fintech Options?
While standard banks are now catching on to the slew of FinTech trends, we felt it would be prudent to provide our selection of the some of the top FinTech SME lending sites. The following organizations are more focused on lending to small businesses and can be thought of as leaders in their specific industry. Here is a small summary of their features:
These are just a few of the many Fintech options available to the martial arts business owner. Depending on your financing requirements, the amount of information you need to provide in order to explore possible lending options is may be small enough that you can quickly and easily research several FinTechs in order to determine the best fit for you.
For the most part, Fintech lending requires that you have been in business for certain time and make a certain level of revenue. As mentioned, the credit score can be contentious, so some FinTechs have their own credit scoring process that takes into consideration your banking and social media details. Repayment is rapid and can be made monthly, weekly or even daily!
My final comment is a caveat. Due to the nature of the Fintech Industry, the initial interest rates offered may be on the high side. As with most financiers, you can always get a better rate depending on how much verifiable credit information you are prepared to provide.
More options now available
Even if you have a good relationship with your bank, it is still nice to know that you, as a martial arts school owner, now have more options available to you ensuring the success of your growing business. Whether you are looking to expand, purchase new equipment or simply trying to cover your working capital needs during those slow months, looking to a new FinTech for assistance is getting easier each year which can only benefit our industry as a whole.
Andries Pruim is a 6th-degree black belt in Shotokan karate with over 45 years experience training in his home country Canada as well as in Japan. A former martial arts school owner, Pruim has 38 years of corporate financial and business management experience. He is a Certified Financial Planner, and continues to renew his CFP designation and update his financial knowledge and skills. In the martial arts world, he is currently a Senior Instructor at two karate schools in Langley, British Colombia, Canada.
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