Monthly Archives: March 2017

Fintech is Bridging the Big Bank Gap

Big banks have always been averse to risk.  They also tend to view small and medium-sized businesses as high-risk, choosing to restrict investment, in terms of both lending and services, for the SMB market. A 2015 credit survey by the Federal Reserve found that smaller institutions were 18 percent more likely to approve a small business loan than big banks, while SMBs that did work with big banks reported an uninspiring 51 percent satisfaction rating.

While banks are not always helpful to SMBs, there are other options for the services they deliver.  The good news for SMBs is that everything from small business loans to payments, payroll to point of point of sale suddenly has competition in the form of fintech.  Fintech is creating competition in a financial services market which would have seemed highly inhospitable to budding providers just a few years ago.  Some fintech companies are thriving providing specialized, effective services, from lending to payments and everything else SMBs need to thrive.

Fintech Trends

Competition Benefits Many

Some of the results are stunning, with fintech companies that were themselves small businesses rapidly expanding into the service vacuum left by big banks.  Companies shaking up the SMB lending market include Kabbage, which has processed over $1.6 billion in SMB loans, and Lendio, which secured $20 million in funding in October. Sweden-based payments provider Trustly is processing transactions at an annualized run-rate of over €3.5 billion.

Clearly, their market is large, and investors see continued growth.  So who are their customers?  Trustly’s Chief Commercial Officer, Johan Nord, sees them as regular SMEs, with an appetite for growth, that want a a cost-effective, easy, and effective system for payments.

“Trustly’s technology allows SMEs to expand from one country throughout Europe at no extra cost, effectively making them pan-European,” Nord says. “It is all managed through one agreement for all markets, thereby reducing administrative costs. Since Trustly manages the entire payment process, it enables instant and painless refunds for merchants. It affords SMEs other functions too, such as enabling payments to be delayed until certain criteria have been met or splitting payments between different providers in the value chain.”

For the most part, fintech companies have not not fought the big banks for their traditional lines of business, like big business credit, and residential mortgages, but there have been fintech entrants even to those markets, in addition to those supplying under-served or newer markets like eCommerce.

Micro-lending  innovator Muhammad Yunnus won the 2006 Nobel Peace Prize, and fintech has brought this disruptive financial innovation to a range of markets, including SMB loans.

Competition from fintech not only increases the availability of financial services, it can also promote lower prices, and create new services through tailoring or packaging for specific markets, as well as innovation.  Fintech can also deliver other benefits, like speed, security, and convenience.

What Fintech Brings to the Table

Applying technology to financial industry challenges often means using innovations in encryption and other areas of security, or algorithms which help analyze opportunity and risk.

Some of the specific benefits of fintech vary between different financial services, and some are more or less common to the type.  Technology can lower barriers and costs, and enable new or different service models, including tailored solutions.

Just in lending, social lending and algorithmic credit assessment have increased availability for small and medium-sized businesses.  New models of financing are also enabled by fintech.

Peer-to-peer lending platforms lower the scale barrier that has blocked many SMBs around the world. Companies like US-based Funding Circle or Prosper Marketplace have facilitated tens of thousands of peer-to-peer business loans.  SMBs are benefiting not only from access to financing, but in some cases from superior rates, spurred by both the removal of intermediaries and competition for early market share.

In payments, fintech is deeply connected to ecommerce and international commerce, enabling cross-border sales without creating major challenges related to transaction speed or currency conversion.  By enabling ecommerce for SMBs, fintech holds the key to rapid growth for companies slowed only by the size of their local market.  A company successfully serving a local niche may simply repeat that success in numerous similar markets in different locations if it can manage to take payment and deliver the product or service from a distance.

Importance of Business Services Procurement to Profitability

For many small and medium-sized business owners, the same kinds of scale issues that make borrowing harder also present cost challenges.  There are very few opportunities for SMBs to cut costs without sacrificing the quality of core products or services.  Getting a slightly better rate, or a slightly more efficient service, can be the difference between good margins and no margins.

Savings can be found in competitive areas of the business services market, and in emerging services that do something in a new, more efficient way.  While fintech has increased direct competition with the big banks face in a number of services, fintech can also reduce the number of steps in a process, as Trustly does by providing a bridge directly between customer’s banks, and the merchants they want to pay.

“For SMEs new Payment Initiation Service Providers (PISPs), like Trustly, offer the efficiencies that comes with new and innovative electronic payment solutions. Trustly’s service enables consumers to pay for goods and services online directly from their bank accounts, without the need for middlemen such as a credit or debit card, with bank level security to and from anywhere in Europe. The product is free for consumers, and has the added safety feature of not storing any of your valuable details, and for SMEs, such as e-merchants, it eliminates risk and fraud issues. The Trustly user interface can be integrated into the merchant’s web page and visiting consumers can pay from their local bank using their traditional login details, on any device.”

Those efficiencies, from avoided fees to middlemen to fraud reduction, all save businesses money.

Since all of the money saved in business expenses is either added to the bottom line or redirected into funding other areas, finding ways to receive the same or better business services for less money is a huge opportunity.  At this point in the development of the market, SMBs are positioned to join the front line, benefiting from that opportunity, with fintech.

With a little extra time to shop around, you can take advantage of new and improved market for financial services.

  • Big Banks Cut Back on Loans to Small Business
  • FinTech v. traditional banking: It’s not a zero-sum game
  • The Big Banks Are Becoming ‘Dumb Pipes’ As Fintech Takes Over
  • Top 10 Fintech for Small Businesses

– For SMEs new Payment Initiation Service Providers (PISPs), like Trustly, offer the efficiencies that comes with new and innovative electronic payment solutions. Trustly’s service enables consumers to pay for goods and services online directly from their bank accounts, without the need for middlemen such as a credit or debit card, with bank level security to and from anywhere in Europe. The product is free for consumers, and has the added safety feature of not storing any of your valuable details, and for SMEs, such as e-merchants, it eliminates risk and fraud issues. The Trustly user interface can be integrated into the merchant’s web page and visiting consumers can pay from their local bank using their traditional login details, on any device.

– Trustly’s technology allows SMEs to expand from one country throughout Europe at no extra cost, effectively making them pan-European. It is all managed through one agreement for all markets, thereby reducing administrative costs. Since Trustly manages the entire payment process, it enables instant and painless refunds for merchants. It affords SMEs other functions too, such as enabling payments to be delayed until certain criteria have been met or splitting payments between different providers in the value chain.

A Crowdfunding Platform

Crowdfunding has become the way to raise money for all kinds of projects in the early 21st century. Businesses, nonprofits, artists, and entrepreneurs of various stripes have all succeeded in running startup funding campaigns on one of the many crowdfunding platforms that have sprung up in recent years. But crowdfunding isn’t as easy as simply signing up for a service and listing your financial needs. The first step is finding the platform that is just right for your business.

An Introduction to Various Types of Crowdfunding Sites

Like many other things, crowdfunding sites come in a lot of different shapes and sizes. There are crowdfunding sites for nonprofits and social causes:

  • Crowdrise
  • Rockethub
  • Causes

These are just a few. There are plenty more.

Crowdfunding sites for independent artists and people spearheading creative projects include:

  • Kickstarter
  • Indiegogo
  • Pubslush

If you want to start a business or find investors for your million dollar project, then perhaps one of these crowdfunding sites will be more your speed:

  • AngelList
  • Fundable
  • Somolend

The JOBS (Jumpstart Our Business Startups) Act of 2012 has opened up thousands of opportunities for entrepreneurs who need money for their projects. Before, startups looking for financial backing had to request financial assistance only from their internal networks or through connections made while networking. They could not advertise publicly that they were looking for financial backing. That has changed, and the change has created a new culture of crowdfunding that is just getting started.

A Survey of the Crowdfunding Industry

Crowdfunding is not just one class of individuals or set of organizations. It’s for everyone. In fact, many types of people from a variety of backgrounds have been successful in using crowdfunding to get the finances they need for their projects. This includes:

  • Artists
  • Small business owners
  • Serial entrepreneurs
  • Philanthropists
  • Scientists

There are four basic types of crowdfunding. You should be familiar with each of them.

  1. Equity-based – These types of sites reward investors with a stake in the company.
  2. Donation-based – Contributions could be tax deductible and go toward funding a specific cause.
  3. Lending-based – Investors are repaid over time and may even be paid interest for their investments.
  4. Rewards-based – Contributors receive something tangible for their money.

Some crowdfunding sites specialize in a particular industry or niche, such as WeCANNA, a site geared toward funding cannabis startups. Other sites, like Kickstarter and Indiegogo, are more general in nature and help people fund a variety of types of projects. Others may offer two or more of the above types of funding in a hybrid approach. Gofundme is a crowdfunding site where people can fund personal needs such as medical expenses and educational goals.

How to Get the Money You Need Through Crowdfunding

The first step to successful crowdfunding is to define your project and fundraising needs. Are you looking for angel investors or do you wish to fund a single project of an existing business? It makes a big difference in how you approach your funding campaign, so start by defining your project. Then follow these steps.

  1. Determine how much money you need to successfully implement your project. Don’t just guess. Get real financial data by securing quotes from contractors you will be dealing with, bids on building materials, and sound financial information on all other aspects of your project before you start asking for money. It might help to create a business plan.
  2. Before you start, let your network know of your plans. Ask members of your network if they can recommend any sites. Ask them why they recommend that platform. Also, be sure to ask what incentives would make them invest in your project. That will let you know whether you should be looking at equity-based platforms or rewards-based crowdfunding sites.
  3. Research the crowdfunding sites to determine which ones are a good fit based on the types of crowdfunding they specialize in and whether they target a specific niche. Also, find out if anyone else has been successful seeking funding for similar types of projects. Which crowdfunding source did they use?
  4. Interview someone from each of the crowdfunding platforms you are considering. Ask good questions that will narrow down the sites to one or two good fits for your project.

Keep in mind that crowdfunding isn’t for everyone. It’s still new. The most successful projects are based on a solid plan. Know what you want out of a campaign before you start one, and know what you have to contribute to potential investors.

Let’s Learn About Business Accounting Tips

It’s an easy area to overlook. As a business owner, you might look at making your website more effective, improving your management skills, company morale, conserving electricity, and getting the best prices on your raw materials but there’s one place that you might not think twice about. Your accounting department probably isn’t an area you scrutinize. One or two people sit at a desk all day, shuffle paper, type a lot, and at the end of the day, if bill collectors weren’t calling you, you’re happy.

Or maybe your accounting department is you. You might not be an accountant by trade so you’re always looking for a way to make the act of money shuffling more efficient is welcome. We’re here to help.

1. Consider Lockbox Processing

If you receive a large amount of customer payments, you’re a prime candidate for lockbox processing. Instead of having payments sent to your business address, they go to a PO box where the bank processes the payments and deposits them directly into your account. The bank sends you electronic records of the transactions that are automatically entered into your accounting software.

If it seems a little complicated, it will be at first but the amount of time saved by not manually processing payments makes the investment of time and money worth the hassle.

2. Improve Credit Screening

A sale is only a positive for your business if you actually get paid. A customer who doesn’t pay becomes a bad debt and that costs your business money. If you’re shipping product on credit, do a credit check first. Invest in software that will automatically screen customers and put a hold on shipments if their credit looks questionable.

Ask for a deposit or ship COD to avoid the accounting nightmare of chasing down bad debt. Even if you recover the debt, you probably lost money anyway.

3. Rethink how you reimburse employees

The process is often cumbersome. Employees who amass travel and entertainment expenses fill out a form, include a stack of receipts, and submit for reimbursement.

The problem, however, is the errors. Mislabeled codes, addition errors and missing information mean more work for the people processing the payment.

Instead, use an electronic entry system that prepopulates information and allows the employee to scan receipts. All or most of the process becomes automated.

4. Use a purchase card

One employee spends $5 and needs reimbursed. Another spends $10 and yet another spends $7. How about the $29 invoice that arrived today? All of these small charges take far too much time for such a small amount of money.

Instead, give key employees and/or departments purchase cards. When they make a purchase, they submit the receipt or invoice and accounts payable matches the receipt to the statement. Instead of multiple checks, they cut only one for the month.

5. Use a standard chart of accounts

Instead of allowing people to code invoices as they would like, make everybody use the same account numbers. When processes are consistent across all employees and departments, the accounts people can process paperwork more rapidly.

6. Make new employees complete all paper work before starting

Allowing important employee documents trickle in makes it more difficult for HR and accounts payable. Send the employee all paperwork prior to their first day and tell them that it has to be submitted before they start working.

7. Collect or apply taxes immediately

Waiting to do something later invites accounting errors. When employees are paid, account for payroll taxes right away. Same with sales taxes. And pay estimated taxes regularly and on time.

8. Set up separate coding for ongoing projects

If you’re constructing a building, creating new technology or other project that is ongoing, set up separate line items. This allows you to pay bills as needed but gives the project manager clean, easy to generate reports of how costs compare to the budget. Entering costs of the project into the general ledger at a later date means processing the same invoices twice. There’s no need for that.

9. Download bank records daily

If you’re using software like QuickBooks or another higher-end package, downloading transactions from the bank daily is easy and automatic. Not only does this allow you to check for fraudulent activity but it makes generating monthly reports faster. Higher-level managers don’t want to wait until the middle of the month for financial statements from the previous month. Easily solve this problem by doing the work throughout the month while transactions are fresh.