Market Overview

Small Businesses Financing: 3 Ways Fintech Tops Credit Cards

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Small Businesses Financing: 3 Ways Fintech Tops Credit Cards

The small business credit card industry has erupted in the past few years. More banks and credit card companies than ever before are advertising their own plastic that promises things like zero-interest repayment periods, cashback rewards, access to special airport lounges, and myriad other attractive bonuses.

Of course, the rate at which these cards are being introduced is matched by their adoption rate among small businesses. The most recent editions of Pepperdine University’s Private Capital Index shows that 65% of surveyed business owners had used a business credit card to meet their financing needs over the prior three months.

But while business credit cards can deliver some nice perks to small business owners looking to replace their cash payments with a rotating line of credit, these cards are often less suitable for certain financing situations.

Instead, business owners are also turning to small business fintech lenders like Credibly to meet larger financing needs without putting too much strain on a line of credit. What follows are some of the most common reasons fintech financing might be a better option.

Reliance On Credit Score

One of the biggest hurdles of successfully applying for a business credit card is the dependence on the business owner’s credit score, often more than one of them. A 2019 Congressional research report on small business credit markets found that having a low business credit score was the number one reason business owners were denied a line of credit. What’s more, the report found that 42% of small business owners used their personal credit score in their attempt to secure financing.

Applying for business credit cards also runs the risk of damaging the applicant’s credit. Not only does the initial credit check now appear on the applicant’s credit history, but the new line of credit can also be a liability if accessed immediately.

While Credibly does factor in an applicant’s credit score when determining a business’s lending profile, other aspects such as cash flow, time in business, local geography and industry trends, and other predictive metrics play an equal role in its underwriting analysis. And because credibly leverages technology to quickly determine an applicant’s lending profile, financing is often available as soon as the next day, with no risk to your credit score.

Interest Rates and Fees

The convenience of business credit cards have a cost, and that cost largely falls to their fee structure. The vast majority of business credit cards have APRs of around 18%, but can be as much as 25%. Again, while this may not be a problem for rotating expenses, larger debt balances maintained on that card could soon turn unwieldy if not paid down.

Of course, short term loans of any kind will generally hold similar high APR. However, depending on the purpose of the loan, your business’s income, and what the return on investment might be, different types of cash advances or business expansion loans can deliver more modest repayment rates. Credibly, for instance, provides business expansion loans starting at 9.99% APR, while all of its loan options have prepayment discounts that could lower the annual rate to a similar range as a credit card for a loan of up to $400,000.

Duration and Repayment

Credit cards are by their nature somewhat anonymous. While they might have your name or your business's name on them, they aren’t targeted for how you might use them. This is obviously a feature and not a bug, but your business might need a more specific financing solution.

Credibly’s loans, on the other hand, are tailored to each business’s financing needs and repayment option because the underwriting technology provides an accurate snapshot of each business’s operating strength and probability of performance. The process also provides business owners with multiple repayment and remittance options that suit their cash flow over the duration of the financing term.

This contrast between impromptu credit and a more targeted form of financing illustrates the core difference between business credit cards and other financing solutions. Small businesses can count on their credit cards to cover small, recurring expenses that align with their regular cash flow. However, when bigger outlays become necessary, either for a growing business or an unexpected hiccup, online lenders like Credibly can be there to help bridge that funding gap with exactly the capital your business needs.

Posted-In: Credibly credit cardsFintech Financing Small Business

 

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