When looking to obtain small business financing, the first place a business usually goes is to their bank. While most business owners would prefer to work with their own bank, the odds of being approved for a traditional bank loan are not always the most favorable option. In addition, a traditional loan may not be the most effective type of financing for your specific business needs. In an effort to serve customers that don’t qualify under the bank’s underwriting criteria or whose financial needs fall outside of traditional service options, some banks have formed partnerships with alternative finance companies. JPMorgan Chase & Co. and WSFS Bank of Delaware Valley are just a couple of the traditional lending institutions venturing into this new territory and more banks are evaluating the benefits of partnering with alternative finance companies, especially for small business financing.
Partnership Benefits
When banks and other traditional lending institutions partner with alternative finance companies, all parties benefit. Banks are able to expand their offerings, alternative finance companies expand their customer base and small business financing becomes more accessible.
Banks
In general, small business loans are not the most profitable instruments for banks. In fact, many banks lose money on these types of loans, either from one-time costs such as origination and underwriting or ongoing expenses like loan operations, review, compliance, and monitoring. However, small business represents a segment of the customer base that provides a high level of deposits and a consistent income from both the business and the business owner. Not retaining this segment of the customer base would be a lost opportunity.
Partnerships with alternative finance companies enable banks to provide alternative small business financing options while improving operating expense ratios, increasing revenue and enhancing the customer experience. They also allow the bank to take advantage of financial technology, commonly known as fintech, without the huge upfront expense of building their own technology platform. Fintech offers a swift, more in-depth analysis of creditworthiness, giving banks the ability to make better financing determinations in significantly less time than traditional methods.
Small Businesses
By partnering with alternative finance companies and leveraging the power of fintech, banks can provide their customers with more small business financing options and a faster application process. The expanded and accelerated access to financing provides business owners with working capital when they need it most. This not only enables the businesses themselves to take advantage of growth opportunities as they arise – business growth benefits and strengthens the community as well.
Alternative Finance Companies
As previously mentioned, forming partnerships with banks and other traditional financial institutions offers alternative finance companies access to a larger customer base. Although alternative financing has existed for quite some time, the gap in small business financing caused by the recession of 2008 created a surge of alternative lenders and financiers. Not all of these were trustworthy, and some sullied the reputation of the industry, making business owners leary its services. Today’s partnerships help restore that reputation as those seeking financing feel confident working with an alternative financing company via their bank or trusted financial institution.
Small Business Financing Partnerships
There are a few different ways to partner with alternative finance companies. Banks can take advantage of fintech as a third-party software-as-a-service, typically referred to a SaaS, or they can purchase assets originated by an alternative financier. One of the most common ways is to engage in a referral program. These programs offer additional revenue from referral fees, little up-front investment and the ability to build and retain a lasting relationship with your customers.
Capflow Funding Group is an alternative finance company specializing in factoring. Our referral program is open to businesses or professional individuals as well as banks. If you have business customers who require financing that falls outside of your services and think we could help, contact us today. Let’s work together to get your customers the small business financing they need.
