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Small Businesses Seek Capital From Innovative Lending Solutions

Small and medium-sized businesses (SMBs) and their owners are the backbone of local economies worldwide. And they haven’t had it easy, not recently. That’s because they have to big needs: streamlined access to capital to expand their businesses and keep the lights on, and the real-time market intelligence and data to help them make the right decisions and inform their strategic planning. 

And with Hello Alice, announcing a new funding round to help propel its mission of connecting small businesses to capital, alternative SMB financing solutions powered by cutting edge innovations are now increasingly top of mind. 

“AI [artificial intelligence] … is helping us move faster with data sets to get capital to small businesses,” Hello Alice Co-Founder and President Elizabeth Gore told PYMNTS in an interview published Thursday (April 4), adding that there are “more small businesses launching in America than at any time in [Hello Alice’s] history.”

Cash flow is critical for SMBs to meet their day-to-day expenses, such as payroll, rent, utilities and inventory. Access to adequate capital ensures smooth cash flow management, preventing disruptions in operations and enabling the business to function efficiently. With the cost of doing business only growing more expensive for Main Street SMBs, innovation and adaptability are becoming increasingly critical to staying competitive.

That’s because traditional lenders have traditionally failed to effectively service the SMB market — a reality driven in large part by the fact that banking incumbents tend to view SMBs as too small to warrant the tailored services afforded to larger corporates, yet too diverse to be addressed in a scalable way like retail banking clients.

But this dynamic is undergoing a shift as new technologies and alternative data combine to speed up and simplify business funding.

Read moreAI Poised to Drive Small Business Lending Decisions

Data Drives More Inclusive Financial Landscape

PYMNTS Intelligence has estimated only about 8.5% of SMBs have said that they’d found working capital loans from banks were readily available. Conversely, 11% said loans were perceived as being available from online vendors. More than half of respondents said coming into 2024 that they would consider tapping new financing. Of the companies mulling new financing, the data show that more than 26% would consider using an online lender; about a third would use a large national bank.

“We went through one of the most volatile macro environments … and I think many [SMBs] are now starting to think about going on the offensive,” Charles Zhu, vice president of product at Enigma, told PYMNTS in an interview posted in December.

Still, several hurdles, ranging from high costs and stringent eligibility criteria to the complicated nature of the application process, can combine to make accessing working capital a nightmare for SMBs. 

“It’s not simple for small businesses to get a loan, even if it’s a small loan,” Galileo Financial Technologies Chief Product Officer David Feuer told PYMNTS in an interview posted in October. “Banks are becoming increasingly sophisticated in their use of data and their use of AI to make intelligent decisions about who to make their offers to.”

Fortunately, the marketplace is starting to respond with solutions designed to better bridge the funding cap and keep the forward march of commerce moving despite the traditional spigots of credit continuing to tighten for small businesses.

Read alsoOpen Banking Allows More SMB Data to Be Used in Financing Decisions

Small Businesses Need Better Financing

On March 28, Intuit QuickBooks added a line of credit offering to the SMB lending options available through its platform, enabling businesses to access funding from $1,000 to $50,000 to support business growth, pay expenses or get an advance on eligible unpaid invoices. 

And at the start of March, as reported here, Nav partnered with Fundbox to ease the way for SMBs to access capital by leveraging an algorithm that uses more than 45 data points and the user’s business data.

Nav and Fundbox weren’t alone last month, as Fundica, a North American funding search engine, also teamed up with Visa to help traditionally underserved small business communities access additional sources of working capital.

Elsewhere in the marketplace, Australian FinTech Beforepay launched an AI-powered B2B lending tool March 4, while PYMNTS reported on how credit unions are exploring the potential of digital transformation to drive better SMB lending outcomes. 

Still, PYMNTS Intelligence in “SMB Borrowing Dynamics: Trends, Tools and Decision Drivers,” a collaboration with U.S. Bank, finds that low-revenue SMBs (those earning less than $1 million in annual revenue) are almost twice as likely as the average SMB to say no to borrowing altogether.