When it comes to business financing, what’s obvious is that it is rapidly evolving. Very rapidly. Most banks have already shifted online. Getting a loan doesn’t require you to wait for days or weeks. The new, streamlined processes have replaced old, time-consuming ways of loan application and approval that also involved endless amount of paperwork. The pace of technological innovations in the world of financing has been further accelerated by fin techs.
However, what’s less obvious is: What comes next? What are the things that could shape small business financing going ahead?
We have identified a few things that could set the tone for small business financing in 2019 and after that. Some of these trends are continuing from the previous years, while others are completely new and unexpected. Check them out:
Growth of Fintechs
Traditional banks are finally adopting the innovative digital tools like paperless approval process created by BankBazaar to meet the changing customer demands. You can now pay for your drink by simply tapping your phone on the contactless terminal in a bar. Using your computer, you can check your loan eligibility within seconds, right from your home. You can transfer funds to just about anyone using your smartphone.
You know what’s common in all these innovations? All of them have mainly resulted from the growth of fintechs all over the world.
In 2019, all eyes will be on these fintechs. Experts believe that fintechs are expected to target small business financing, which is usually considered risky by traditional banks. This will be further accelerated by regulatory changes in open banking rules. Regulators are now urging banks to share more and more data with fintechs, so they can develop new, innovative applications. It’s these applications that are expected to enable small and large investors to lend to small businesses.
Also, this leads one to the question, are fintechs posing a threat to traditional banks? Maybe. But that’s also expected to work in favour of small businesses. Market experts believe that instead of competing, banks are now ready to work with fintechs, which could result in new financial products for small businesses.
Crowdfunding
Crowdfunding has been around for over a decade but its only recently that it started to gain popularity as a viable funding source. There are a few platforms that are enabling businesses to raise money online via debt, equity, and rewards-based crowdfunding. In 2018, several business projects managed to raise millions of dollars online from strangers.
So, what does the path for crowdfunding look like in 2019? In a recent report, the World Bank said that crowdfunding has the potential to solve the problem of lack of funds for innovative ideas, especially in the developing world. According to the World Bank, there are about 344 million households in developing countries that have the ability to make crowdfunding investments. It also highlighted the growing opinion among experts that crowdfunding could even help developing countries surpass the developed ones in terms of the financial infrastructure that is required to support innovative ideas. Now you can imagine how crowdfunding could be a game changer for small business financing in 2019 and ahead.
Initial Coin Offerings (ICOs)
It’s easy to confuse ICOs with crowdfunding but there are some differences between the two. ICO is a new fundraising tool that is based on the idea of Initial Public Offering (IPO) except you trade cryptocoins for cryptocurrency. Unlike crowdfunding where accessibility is a concern, ICOs are far more global and accessible. Anyone from anywhere in the world can participate in an ICO. ICO investors get token coins in exchange for their investment.
A recent PwC report suggested that about 537 ICOs were launched in the first five months of 2018, raising a total of US$13.7 billion – which is way more than the total amount ever raised before 2018. That’s a huge amount but quite understandable considering the fact that it allows businesses to raise funds within minutes. Even as most countries have still not opened up to ICOs, there are countries like Hong Kong and Singapore that are emerging as attractive destinations for these offerings.
The sudden rise in popularity of ICOs has also drawn the attention of regulatory bodies all over the world. There could be increased scrutiny of ICOs going ahead, but they are definitely a trend to watch in 2019.
Venture Capital Investments
2018 was a record-setting year for Venture Capital (VC) investments in startups and small businesses. According to a report, such investments grew to a record high of US$148 billion in 2018. Data suggests that the trend is expected to continue in 2019 as favourable economic environment coupled with positive market sentiments will boost the confidence.
But there could be a twist to the story. The year 2019 could see many small and micro venture capitalists entering the market as well.
So these are some of the most important trends to watch in small business financing in 2019. If they take the expected course, things could change significantly for small businesses in the coming period. If they don’t, some new opportunities may unfold – after all we live in exponential times. Either way, it will be an exciting year for small business financing.
