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At the intersection of B2B payments and corporate finance, businesses are seeking more from their FinTech products. Not only do small and medium-sized businesses (SMBs) need solutions that can combine financing and a mode of payment in a single tool, but they’re also elevating their requirements for user experience, value-added benefits and more.
The forces that SMBs are imposing on the lending, finance and payments space are encouraging a wave of next-generation alternative lending. While having a choice is certainly a positive situation for SMBs in need, Vashon Gonzales, vice president at Kaped, recently told PYMNTS that business owners might need to take a more conservative approach to accessing credit.
By emphasizing a responsible approach to funding SMBs, providers of credit and their small business clients can mitigate risk while still elevating the value proposition.
An Elevated Offering
Kaped recently announced the development of its small business line of credit, which will join the firm’s other existing services that include integrated payables solutions that optimize working capital through B2B payments. The line of credit was the result, noted Gonzales, of examining other products on the market and exploring ways to elevate the customer offering.
Rewards, including those seen in popular business commercial card products, were a significant part of product development. But it was also important to offer a product without fees or an annual percentage rate (APR). This, Gonzales said, aims to help businesses not just cover cash flow gaps but also to support their efforts to build wealth.
“This is going after a certain type of business who’s already established, who has worked their way up and who kind of deserves it,” he said, noting that the product is not designed for startups but for more stable operations with a bit of financial history on the books.
The solution also aims to support the user experience through an enhanced underwriting process. Rather than relying on a credit score, Kaped integrates into accounting platforms and examines bill payment patterns to determine a risk profile.
Beefing up a financing product with rewards and affordability can attract a higher volume of potential clients, but Gonzales emphasized the importance of a responsible approach to business finance in an economic climate in which demand for financing is on the rise and FinTech innovators are introducing new choices to the space.
Gonzales said he would recommend against a small business accessing a variety of credit and loan products.
“Credit just equals debt,” he said. “If you want to be more of an established business, you should always have more assets than credit.”
“If you want to be more of an established business, you should always have more assets than credit.”
It’s an important realization for a market with limited borrower protections. Unlike consumers, small business borrower protections are not as far-reaching as some might like. This can land an SMB in hot water quickly if they choose the wrong product.
“There are no regulations that stop [lenders] from taking advantage of small businesses through super-high interest rates and things of that nature,” he added. “So when a business is able to get approved for something that seems too good to be true, sometimes it is.”
There might be another alternative-lending wave crashing on small businesses’ shores as FinTech innovators seek to compete with the industry heavyweights. Yet as new products step into the market, small businesses must balance access to credit and capital with responsible debt.
As Gonzales said, their FinTech partners should similarly emphasize responsibility, both in their underwriting processes and in choosing the small businesses with which they work.