by Ralph Tkatchuk

Lending as a service (LaaS) and why it matters

Aug 23, 2017
Cloud ComputingFinancial Services Industry

Traditional financial services providers have tightened their lending requirements, leaving many small business owners with few channels to uncover the capital they need.

Thefinancial crisis of 2008 caused global shockwaves, wrecking businesses and wiping away thousands of dollars’ worth of individuals’ savings. World markets are still recovering to this day, and governments have enacted strong reforms to prevent a repeat occurrence. These new, stricter regulations have deeply changed the financial world. Along with shifts in consumer preferences, banks and lenders are now faced with a vastly different financing landscape.

Traditional financial services providers have tightened their lending requirements, leading to tougher barriers for regular customers to find funding. Whereas customers with weaker credit had few problems finding loans in the past, banks are now turning them away in droves. For many small business owners, this harder path to access financing through loans means that they are left with few channels to uncover the capital they need. However, developments in financial technology and online lending offer small businesses a new alternative in the form of lending as a service, or LaaS.

The state of business lending today

Banks today are turning away more loan applicants than in recent memory thanks to stricter regulations and lingering memories of the recent financial crisis. Younger entrepreneurs who have little or no credit history often find themselves rejected from these financing options. This can present a problem for ambitious individuals who are seeking capital to open new ventures.

Even when they are accepted, the loan process can be arduous and needlessly complicated, taking longer than business owners can afford. Applications take several visits to the bank, credit checks, records requests and weeks’ worth of back-and-forth communications just to reach the underwriting phase.

Luckily for many, the fintech industry has created a viable solution to meet the challenge of raising capital. The new model of LaaS offers small and medium-sized businesses access to funds without the bureaucracy and complications put forth by traditional banks. By working entirely online and lowering overhead, LaaS providers can offer better rates and loan terms at a much swifter pace in comparison to traditional lending institutions.

Moreover, LaaS automates the lending process, removing many of the steps banks usually place as stumbling blocks to give customers faster access to financing with fewer barriers.

Technology-based innovations for LaaS

The major catalyst for this new lending paradigm has been the rapid pace of online technology innovation over the last decade. Improvements in cloud infrastructure and artificial intelligence systems enable fintech companies to create reliable evaluation and matching systems for loans. Companies can now examine a potential borrower’s financial records in minutes instead of weeks. Thanks to this compressed timeline, approval can now happen in as little as one day.

The quick turnaround times means that businesses no longer have to struggle to stay afloat while waiting for a capital infusion. Moreover, companies can cover cash flow shortfalls as they emerge or easily finance expansionary efforts, leading to better prospects of success.

Instead of multiple meetings with bank lenders over the course of many weeks to compare options, users can often be approved in under a day by a reputable LaaS company.

LaaS platforms such as Ezbob promise to approve a business loan for companies and deliver funds in under thirty minutes. The company’s algorithm examines more than credit scores, evaluating company financials and records to quickly distribute capital to those that require it most. By minimizing this turnover time, new platforms have positioned themselves as an integral component of the modern financial ecosystem.

Tomer Guriel, CEO of Ezbob, sees his company as a solution for the often tedious and time-consuming process of lending.

“The idea of being a technology provider was born in 2012. At the time, we teamed with Accenture in order to sell our platform to banks. Unfortunately, at that time, the banks were not ready to work with a start-up fintech. The only way we could get the business off the ground was to start lending ourselves.”

Taking over where banks are failing

Companies like Ezbob might have an advantage over banks. Their automated systems enable borrowers to easily place financing requests from anywhere. Customers can apply for loans directly from their phones and receive the same or sometimes better offers compared to peers seeking financing from brick-and-mortar banks.

LaaS also undercuts banks’ services by improving on their cost structures. These companies’ online model removes or reduces many of the overheads traditional lenders face, including labor, rent, utilities and more. These savings are transferred to customers in the form of lower rates and better terms. LaaS also offers an around-the-clock service, as customers are not directly dealing with representatives, but rather an application or website.

Banks also tend to leave out those small businesses looking for lower sums. Traditional financial services providers are often hesitant to approve loans under £120,000. They are viewed as dangerous and high-risk loans, especially for businesses with a shorter track records and individuals absent proper credit histories.  However, LaaS entities consider these smaller and medium-sized businesses to be their primary audience. This type of lending model is perfectly positioned to fill the gap for growing businesses in dire need of swift funding.

The future of fintech and alternative lending

Businesses worldwide are looking toward fintech as a beacon for the endless possibilities emerging for advancement. Alternative lending methods like LaaS were once viewed hesitantly by businesses and individuals trying to verify the integrity and legitimacy of these strategies. However, companies like Ezbob, Funding Circle, Market Invoice and many others have proved to be a trusted and transparent force in the rapidly developing fintech universe.

More and more businesses every day are looking to LaaS for help with their funding needs. These entrepreneurs are making the switch from traditional bank loans, which have a history of being especially cumbersome. It is clear that LaaS is here to stay, thanks to its strong and promising position in the future of fintech.