Fintech Lenders and Their Potential to Reach Underserved Women- and Minority-Owned Small Businesses
The speakers in this session wasted no time delineating the barriers minority and women business owners face, among them lower wealth and lower credit scores.
If a firm is less than 2 years old, very few financial institutions will consider lending to it, one presenter said. That’s typical for banks and community development financial institutions, the latter of which often fill lending voids.
Online fintech lenders are extending credit where it might otherwise not be extended, according to research and anecdotes shared, but both the speakers and audience members identified worries, too. Some fintech products’ terms and costs are complicated. Additionally, for some of these lenders, “there seems to be focus on top-line revenues,” one speaker said. “If you’re a lender and you’re taking daily draws and diverting merchant transactions from the business, you get paid before merchants ever see the money.”
Critical questions remain: Are fintech lenders adequately vetting small-business borrowers’ ability to repay? Can small-business borrowers remain profitable given the way some fintech products are structured?
When asked what excites and worries her most about fintech, Ingrid Gorman, research director with the Association for Enterprise Opportunity, replied, “There’s a cost to originating those [small-business] loans, and the banks don’t want to do it. There’s a risk; small businesses have lower credit scores. Fintech can address it. It costs [fintech lenders] less to process loans; they have efficient ways to gather information about the customer. That’s one thing that excites me. But they haven’t completely solved cost issues, and they’re charging much higher rates to address them.”
The small businesses that apply for financing through online fintech lenders tend to be newer and smaller enterprises and also minority-owned, according to the Federal Reserve’s 2015 Small Business Credit Survey.
“I’m going to go back and suggest we do a microloan program,” said Caitlin Bortolotto Krebs, business development officer for CityWide Development Corporation, a community development financial institution in Dayton, Ohio. Bortolotto Krebs also said she would follow one speaker’s recommendation to research and use technology to shave costs. “I have to enter information from borrowers and produce documents through the approval process,” she explained. “If I can use technology to do it more quickly with less human involvement, cheaper loan production would be the result and that should result in more loans and improved approval times.”