Leaders in the financial technology (fintech) industry addressed members of the House Subcommittee on Economic Growth, Tax, and Capital Access on online lending’s role in improving small business capital access.
“The amount of community banks in the United States has fallen dramatically in recent years, and regulations such as Dodd-Frank have made it more difficult for small businesses to acquire loans through traditional means,” Subcommittee Chairman Dave Brat (R-VA) said. “One private sector solution that has grown considerably in recent years to address this credit gap is online lending.”
Online lenders estimated that they lent between $5 and $7 billion loans to small businesses in 2015. The industry is expected to become a $50 billion-dollar industry by 2020.
Katherine Fisher, partner at Hudson Cook, explained that fintech lending includes non-traditional lending that directly addresses some concerns of small businesses by providing faster access to capital than traditional lending.
“Technology has allowed lenders to automate the lending process, leading to a less burdensome application process,” Fisher said. “The existence of fintech lenders provides small businesses with the ability to quickly obtain capital needed for immediate operations.”
William Phelan, president and co-founder of PayNet, told the subcommittee that fintechs have provided three critical benefits to the supply of credit to small businesses.
“First, they have figured out technology platforms to lower the cost of processing a credit application; second, they have changed the expectations among small businesses for access to and speed for working capital credit; third, they are filling the credit gap faced by small businesses across the credit spectrum and industry sectors,” Phelan said.