The digital lending market was valued at US$ 311.06 billion (EUR 299.38 billion) in 2020 and is expected to reach US$ 507.27 billion (EUR 491.16 billion) in 2025, representing a 63% increase.
By 2030, the market is expected to reach nearly US$ 889.99 billion (EUR 861.73 billion).
These market size figures highlight the increasing popularity of digital loans, particularly among small and medium enterprises (SMEs), often harshly sidelined by traditional banking.
This expansion in digital lending is driven by the need for faster, more accessible, convenient, and flexible financing solutions. For SMEs, digital loans have become essential for managing cash flow, funding growth, and addressing emergency financial challenges.
Unlike traditional banks with stringent requirements and lengthy approval processes, digital lenders utilize advanced analytics and machine learning to offer a more streamlined loan origination process.
In this article, we explore how digital lenders are changing SME lending, the different financing options available to businesses, the role of loan comparison platforms, and how to manage revolving credit.
The Rise of Digital Business Loans – Why Companies Are Shifting Away from Traditional Banks?
Now more than ever, businesses need faster and more flexible funding options. This demand is driven by the constant need to adapt, compete, take advantage of time-sensitive opportunities, manage unexpected expenses, negotiate market fluctuations, and maintain steady cash flow.
Many SMEs still prefer traditional banks for their needs, but the use of competitors like fintechs and big tech to access capital continues to rise.
There are many reasons for this shift, primarily speed and convenience. According to a survey by EY, 55% of SME owners would like to receive their approved funding within seven days, while 31% expect to receive the same within three days.
Many traditional banks do not currently meet these expectations due to their persistent use of the manual loan application review process, slow technology adoption, and general risk aversion or, at best, risk neutrality.
Traditional banks also generally have more stringent requirements that SMEs cannot meet. For example, a report by the OECD notes that one of the reasons for a steep increase in loan rejection rates to SMEs in the United Kingdom was an increase in collateral requirements.
Business owners will rather chase capital injections from channels with a lower probability of rejection to meet their financial obligations.
Another reason SMEs increasingly lean towards digital lending is increased fintech regulations worldwide, which bring clarity and transparency to the ecosystem. Countries that have recently published new fintech laws saw a 103% increase in digital lending.
Choosing the Right Financing Option – Business Loans vs. Credit Cards
These days, businesses have access to multiple credit options, and the right choice depends on their needs.
Per their nature, business loans are ideal for major, long-term investments such as geographical or product expansion, equipment purchases, and completing mergers and acquisitions. The main advantage of business loans over credit cards is lower interest rates.
Business loans are, however, harder to qualify for, especially if your business is relatively new.
On the other hand, business credit cards are tailor-made for short-term needs or everyday expenses, such as office supplies, travel, or managing temporary cash flow challenges. Credit cards offer a revolving line of credit, allowing you to borrow and repay as needed.
However, with high interest rates, failing to pay your credit card monthly balance can quickly lead to mounting debt.
The right financing option will depend on your business’s specific needs, current and projected revenues, and the ability to make repayments alongside other financial commitments.
Instant Business Loans – How Entrepreneurs Can Access Quick Capital?
Some scenarios that may prompt businesses to seek instant loans include emergency equipment repairs or replacements, inventory purchases to meet increased demand, cash flow gaps due to seasonal fluctuations, and more.
When seeking quick capital, some of the available options for entrepreneurs include:
- Loan from friends and family
- Overdraft
- Online lenders & fintech platforms like https://laina.capital/ and https://laina-heti-tilille.fi/ offer instant loans directly to a business’s bank account.
- Invoice financing to unlock cash from unpaid invoices if you have late-paying customers.
- Merchant Cash Advances (MCAs) to receive an advance against future credit card sales.
- Business Lines of Credit (LOC)
- Peer-to-peer (P2P) lending to borrow from willing investors.
The application process for these loans is quite straightforward and can be completed online for most P2P and digital lending platforms.
Before choosing a quick business loan ensure that you thoroughly assess the options, repayment terms, interest rates, and fees to ensure it aligns with your business’s financial capacity and needs.
The Role of Loan Comparison Platforms in Smarter Borrowing Decisions
Loan comparison platforms like https://halvinlaina.fi/ aggregate loan offerings from multiple lenders, present the information in an easily digestible format and enable business owners to quickly compare numerous lenders without visiting their websites.
These platforms also feature tools that allow entrepreneurs to filter loans based on their preferences.
For example, on https://nopealaina.fi/, a loan comparison platform, business owners can adjust “loan amount” and “loan period” and immediately see their potential monthly installments.
In addition, these platforms display customer reviews to help you assess lender credibility, customer service quality, and overall borrower experiences before making a decision.
Shopping around and comparing different loan offerings can help businesses choose a credit provider that works for them and also saves them money in the long run. A simple 1% difference in interest rate can lead to significant savings, especially on larger loan amounts.
Flexible Credit Lines for Business Expansion – How to Manage Revolving Credit?
Revolving credit is excellent for getting credit as often as you need, but its inherent risks can quickly turn this advantage into a financial burden.
It is, therefore, imperative to adopt best practices to ensure you can maintain a good credit score and financial health. These best practices include:
Never exhaust the entire credit limit
Experts, such as the United States Consumer Financial Protection Bureau (CFPB), recommend using no more than 30% of your total credit limit at a time.
One trick to doing this is using your revolving credit only for what you truly need, despite the temptation to overspend.
Pay off your entire balance monthly
It may also be tempting to make only the minimum payments stipulated in your contract instead of the full balance.
From experience, that’s a trap that will add more interest to your balance. Without caution, this can balloon out of control.
An added advantage of paying off your balance every month is that it ensures your maximum credit limit is available to you in the future should you need it in dire circumstances.
Take cash flow planning seriously
Cash flow planning provides a clearer picture of a business’s financial health. It enables you to understand your business’s cash flow trends and helps you better prepare for periods where you expect shortfalls.
Furthermore, it’s a handy tool that aids resource allocation and prioritization.
Shop around for better deals
Use loan comparison platforms to get better revolving credit lenders offering cheaper interest rates or better deals. Compare credit card revolving financing on https://luottokortti.io/, a credit card comparison website.
The Future of SME Lending – AI and Automation in Loan Approvals
Recent advancements in advanced analytics and machine learning are having a profound effect on the customer lending journey.
Lenders are leveraging a wide range of customer data from within and other external sources to build powerful models that achieve the following:
- Credit qualification: Almost instantaneous, automatic assessment of an SMEs likelihood of default or creditworthiness.
- Limit assessment: To accurately determine a customer’s loan capacity.
- Personalized pricing: Offer different interest rates and fees based on a customer’s risk profile.
- Fraud management: Mitigate fraud risks associated with increased digital lending.
- Personalized lending journey: Using each customer’s unique context and touchpoints to deliver highly personalized offers.
Conclusion: How Businesses Can Leverage Digital Loans for Growth
Growth requires capital, and digital lenders provide a quick and convenient way for businesses to access capital without the hurdles associated with traditional banks.
In addition, because of low overhead costs, digital loans are usually less costly than credit from traditional banks, making them a no-brainer for SMEs.
Businesses must first assess their needs and then utilize loan comparison platforms to choose lenders that align with these needs to make the most of digital loans.
Furthermore, businesses should always forecast cash flow at least three to six months ahead to help strategically allocate capital and ensure responsible borrowing.
Disclaimer: This article contains sponsored marketing content. It is intended for promotional purposes and should not be considered as an endorsement or recommendation by our website. Readers are encouraged to conduct their own research and exercise their own judgment before making any decisions based on the information provided in this article.
