A brief history of online debt finance

How has the internet transformed business access to debt finance? And what does the future hold? Fleximize’s Peter Tuvey explores.

New online debt providers have embraced the advantages being online brings

New online debt providers have embraced the advantages being online brings

Business debt finance can trace its origins back to the Middle Ages when traders in Venice were able to access money lending services. This was followed by the rise of international banking in the 18th century, led by the Rothschild family. Fast forward to the 1980s, and we saw the first use of the internet for debt financing, with Quicken Loans processing loan applications online for the first time.

Today the internet dominates how businesses obtain and manage the finance they need. Getting a business loan is now very efficient, with instant credit checks allowing loan applications to be authorised, and funds transferred, in minutes. Some services are even available on your phone.

The provision of debt finance has a long history that continues to be transformed as technology develops, and debt financing has remained a popular choice for business owners looking to start a new business or fund the expansion of an existing enterprise. Companies with good credit ratings can often obtain the finance they need for low rates of interest.

Of course, the financial crisis of 2008 did much to change the business funding landscape, and how easily business owners can obtain debt finance. Small businesses have increasingly been considering how alternative sources of finance could help them, following a reduction in SME lending from the high-street banks.

Internet cometh

The internet has become a huge retail store for debt finance. With funding services available for comparison in seconds, business owners have been educating themselves about how moving away from traditional sources of debt finance could be beneficial. Alternative lenders such as Fleximize have led the way in informing small businesses about the plethora of funding options now available to them.

In its State of Small Business Lending report, Harvard Business School comments, ‘Many of the fastest growing models in alternative online lending to small businesses are offering a middle path between banks, which lend primarily to the most creditworthy small businesses, and merchant cash advance lenders, which tend to focus on sub‐prime candidates. These new platforms are largely focused on “mid‐prime” businesses that are looking for a better product but do not qualify for a bank loan.’

Whether a business owner has the necessary robust credit rating is clearly becoming less of a qualifier in the age of online lending. A 2014 New York Times’ article spoke volumes to this shift in debt financing, with its headline proclaiming: ‘Can’t Get a Bank Loan? The Alternatives Are Expanding.’

Today’s online lenders approach business finance not from a completely fiscal standpoint, but sell their facilities based on simplicity, convenience and above all strong customer service. This is a differentiator in the marketplace, especially for startups that are looking to move away from traditional business practices to embrace new innovations in business lending, such as revenue-based finance.

What does the future hold?

The 2008 financial crisis fundamentally changed the relationship between banks and businesses seeking debt finance. The gap in the market that emerged after the crisis is being rapidly filled with new debt finance services. These new players have embraced the internet and how it can enable them to make close, personal connections with a client base that is actively seeking alternative methods of financial support.

What is clear is that the future will see a continued decline in lending from traditional sources, as business owners are seeing the value that alternative channels can deliver. The peer-to-peer (P2P) lending market will continue to grow, as making investments in businesses becomes even more popular thanks to the heightened awareness of crowdfunding. The advent of specialist banks such as Coconut, aimed specifically at the rapidly expanding ‘gig economy’, also illustrates how the shift from traditional banking continues apace.

The internet has become a fantastic gateway to obtain every conceivable product or service. For business owners seeking debt finance, the landscape continues to expand to offer more options. At Fleximize we understand how this changing financial landscape is a reaction to how business is evolving. Visit fleximize.com to find out how we can support your small business.

Peter Tuvey is co-founder and managing partner of Fleximize.

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