What Are the Pros and Cons of Online Lending Platforms?
The market size of online lending platforms from all around the world is projected to increase by more than 200% over the next four years (!), illustrating a growing trend which is likely to maintain its trajectory for the foreseeable future. How will this affect you? Keep reading to find out…
Combining the fact that b2b lending (business-to-business) platforms are on the rise with the seemingly endless expansion of digital platforms of all shapes and sizes (which are found throughout a variety of areas of our everyday lives), and it starts to become clear that our future will doubtlessly be defined by technology – for better or for worse.
In this article, we’ll provide you with a few valuable insights about the pros and cons of online lending platforms. Ideally, not only will this help you to understand why digital lending platforms are developing at such a rapid pace, but also how you can benefit from that growth!
What is a digital lending platform?
First off, a digital lending platform is an online platform that is used to provide loans directly to borrowers (typically those borrowers are small-to-medium business owners). Through the utilization of advanced software and innovative algorithms, these digital platforms are able to streamline what has traditionally been a drawn-out and complicated process of applying for – and receiving – funding.
The automated nature of online b2b lending platforms provides borrowers with a much more precise and personalized approach to delivering funding solutions, thereby reducing stress and increasing chances of obtaining a loan. In the sections that follow, we’ll lay out some of the advantages and disadvantages you should take into account when considering the use of digital lending platforms.
Advantages of digital lending platforms
From the point of view of the business owner, it used to be that obtaining a loan was a process as dreadful as getting a tooth pulled. Today, the procedure has been simplified and made near-painless by digital lending. Below, we’ll spell out some of the biggest benefits of digital lending platforms for their customers.
Speed up the process
Comparing online lending platforms to the conventional route of getting a loan through a bank is like comparing a self-driving car to a horse-and-buggy. Not only is it way faster, but it’s also much more comfortable and a lot less stressful for the passenger.
According to a Federal Reserve survey from 2016, 45% of respondents complained about waiting a long time for a credit decision from their bank. Of those respondents who used online lending platforms, only 17% complained about the wait time! On top of that, automation reduces the process of obtaining a loan from a few months down to as little as a few hours, as is the case when applying for a business loan through Become’s digital platform.
Receive accurate business assessment
Digital platforms, despite their name, are not exclusively digital. They efficiently employ hands-on human scrutinization, while the application of advanced algorithms helps with the ‘heavy lifting’; even construction cranes need operators! This strategy simultaneously allows for a business’s fundability to be analyzed with optimal precision while reducing the chance of human errors throughout the process.
Advanced convenience of accessibility to services
As referenced above, digital platforms are making their way into all different areas of our lives – from communicating with our friends and family, to finding our next favorite restaurant. Online lending platforms are a natural fit with the global trend of advanced technologies. They enhance the customers’ access to, and experience with, their funding services any place at any time (granted you have a good cellular data provider!).
Increased odds of loan approval
All of the advantages listed so far ultimately come together to do a job that was impossible just a few years ago. By using advanced technology, digital platforms make the process faster and more accurate, and also give borrowers direct access to lending services. This has effectively made getting a loan far easier and more likely; according to American Bankers Association, approval rates range from 56% at big banks to 75% with online lending platforms like Become.
Disadvantages of digital lending platforms
The world of digital lending is still a new frontier with unfamiliar and untamed landscapes. As such, it comes as no surprise that there are also a few obstacles that arise in this exciting but unexplored territory – we touch on a handful of them below.
Reduced human-to-human interaction
By eliminating the human factor through much of the lending process, digital platforms are enhancing customer experience through accessibility, accuracy, and speed. But, the lack of human interaction in the process can hinder the customer experience in other ways.
When it comes to explaining the particular circumstances of a small business or finding solutions to problems that the automated system has not yet encountered or perfected, the availability of human interaction can be an invaluable asset. Online lending platforms are still working to strike that balance between automation and the human touch.
Heavy reliance on technology & internet access
While more metropolitan areas face less of a hurdle in this specific aspect, a customer’s access to the internet plays a pivotal role in their interaction with digital lending platforms. A local power outage or a technical issue with the system can ‘virtually’ (pun intended) incapacitate a customer’s ability to use a digital platform.
The ease with which borrowers can now get a loan can also be seen as a disadvantage in the long run. Since automation plays such an essential part in online lending platforms, many customers who will be approved for a loan will ultimately have a very difficult time paying it back. This ties back to the way that advanced algorithms learn and adjust themselves over time but can, unfortunately, make mistakes in the short term.
As technology grows and expands, the advancement of digital platforms in the lending market will continue as well. Online lending platforms like the one used by Become have only been around for a few short years, but in that short window of time, the strides which were taken have been humongous. Projections indicate that this trend towards digital lending is not likely to slow anytime in the near future.