Sweeping coronavirus-related shutdowns across the country have proven that every business needs a digital presence for business continuity.
Banks, in particular, must rethink how they acquire, interact with, sell to and service their small-business customers in an increasingly virtual world. At the same time, small business success is in jeopardy as lending outside of emergency government aid programs has slowed significantly and may soon dry up completely.
As the Biden administration prepares to roll out its small-business recovery plan, the health and well-being of small businesses will take on a renewed sense of urgency, keeping small-business lending in the spotlight. In addition, as more physical branches shutter, banks will need to make bigger investments in technology to reinvent themselves for a digital world and meet the capital needs of small businesses. With all this in mind, it’s not difficult to make predictions for the small-business lending landscape in 2021.
Fintechs will play a critical role in small business recovery. While fintech solutions were once seen as “nice-to-have” benefits, they are quickly becoming integral to business survival. Like we saw with the 2008 financial crisis, fintech platforms fill a key gap in small-business lending, providing loans that some banks may find less appealing. For example, the rollout of PPP shows that nonbank lenders in this space have the technical know-how to get even the smallest of loan dollars to the businesses at the greatest risk of collapse. Keeping fintech involved in the lending space will ultimately help more small businesses access the help they need to rebound and recover from the devastation of 2020.
Additionally, payment processors will continue to grow their lending capabilities. Currently, there is a lot of innovation underway in the alternative lending space, especially with payment platforms like Square, Stripe, Shopify and Uber that haven’t traditionally handled lending. These payment processing companies have a variety of advantages over traditional banks, especially when it comes to data. Given that the platforms own the payment streams of many small businesses, they have access to a wealth of business performance data that can be used to make smarter loan decisions. Because transactions stay on one platform, these companies have added customer insights, and use lending to deepen customer relationships without needing to invest additional monies into customer acquisition. As a result, I believe that these companies will continue to strengthen their presence and activity in the small- business lending space throughout 2021.
