Are Digital Funding Platforms Overtaking Traditional Banks?

Technology has improved a lot of things in life, including the path to small business lending. Simply put, the lending process for entrepreneurs is easier than ever and much of that is due to greater connection to opportunities. Performing a basic online search for "small business funding" will produce a slew of options – and they aren't just from traditional banks. The options for landing a small business loan or grant have never been higher.

As a result, are digital funding platforms making traditional bank loans obsolete?

The Rise of Lending Platforms
Traditionally, lenders wore a suit and tie and small business owners had to make an appointment to pitch their ideas. Today, lenders can connect with small business owners remotely and often not directly. Platforms like LendGenius connect people searching for small business funding with investors who are interested. Instead of completing individual applications for each lender, the small business owners create a profile that is available to the lenders connected on the platform. It saves a lot of time, on both ends, and it also opens up the funding opportunities to a larger group of potential investors. Just how much are investors and lenders actually using these sites? LendGenius reports that more than $6 million in loans were originated in just the first three months of operation. These user-friendly, tech-reliant options benefit small business owners and the people who want to invest in their ideas.

Crowdfunding by the Billions
The popularity of crowdfunding platforms is hard to deny. In 2015, more than $34 billion was raised globally through crowdfunding platforms like Kickstarter. The allure of these sites is clear: average people can invest modestly in ideas that they like without having to make a big commitment. The idea creators have more freedom with the money they raise than with traditional lenders who want a stake in outcomes.

Crowdfunding is certainly exciting but can also be a difficult market to crack. There are millions of projects listed between all of the sites that host the services and it can be difficult to get yours noticed.

Easier Electronic Payment Options
One of the oldest forms of small business lending is seeking it from friends and family. While still a complicated option at times, finding the means to pay back that money on a schedule is really pretty simple. There are sites like PayPal and mobile apps like Venmo that allow easy peer-to-peer payments. You can even schedule payments on a monthly plan so that your friends and family have confidence that you will return their investment on time. Through these platforms, small business owners don't even need to use a bank to transfer funds or honor a check – completely bypassing the need for a bank as the middle man.

Digital lending platforms and repayment options open the door to more financial opportunities for small businesses. As technology continues to improve and people find more confidence in digital means of lending and repaying, expect to see even more options for small business owners.