One of the biggest challenges small business owners face is finding capital. For many of these owners, online “FinTech” lending platforms have come to the rescue. And according to a new report by NDP Analytics, the platforms have funded close to $10 billion from 2015 to 2017.
Online Lending Helps Small Businesses Create Jobs
The five leading online small business lenders including, OnDeck, Kabbage and Lendio, increased from $2.6 billion in 2015 to $3.9 billion in 2017, a 50 percent jump. The approval of the online loans generated $37.7 billion in gross output, $12.6 billion in wages, and 358,911 jobs in communities across the United States.
Titled, “The Economic Benefits of Online Lending to Small Businesses and the U.S. Economy (PDF),” the NDP study was sponsored by the Electronic Transactions Association (ETA), the Innovative Lending Platform Association (ILPA) and the Small Business Finance Association (SBFA).
The results of the report highlight a growing need for finding alternative funding for small businesses to fill critical financing gaps when these business owners need the capital. Report author and Managing Partner at NDP, Nam Pham, explained there is a far-reaching benefit to making the funds available to small business owners.
In a press release, Pham said, “As these businesses succeed, so do the communities around them. Small businesses are increasingly turning to online lenders to help cover inventory, payroll for employees, and other expenses at critical junctures in their growth. The loan impacts not just the borrower, but those who work and engage with that business.”
The study comes from the 179,505 small business borrowers across the United States who received around $10 billion in loans from 2015 to 2017. Based on this funding, the data was analyzed to calculate the direct business impact to these companies and the communities they serve.
Key Findings
One of the key findings from the study is how heavily small business owners rely on access to capital. This includes three-quarters of the entrepreneurs who need funding to start, operate and or expand their business.
The NDP said 24% of the borrowers generate less than 100,000 in annual sales, which qualifies them as microbusinesses. Another two-thirds had less than $500,000 in annual sales.
When it comes to the amount of money they borrow, 42% of small businesses received between $10,000 and $50,000 with an average of $55,498.
Impact of Small Businesses on Local Communities
The research also revealed when a small business receives one dollar in loans, the sales of the borrower increases by $2.31. This, in turn, creates $3.79 in gross output in local communities across the country.
By making more resources available to small businesses — especially in the area of funding — lenders ensure their long-term viability. Jason Oxman, CEO of ETA, said, “Online small business lenders provide key options and benefits to American small business owners in the highly competitive lending marketplace.”
Image: Small Business Finance Association