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Why Asking the Right Questions is Better than Having All the Answers

The definition of a successful business is not as simple as it used to be. Years ago, if an enterprise was making a profit, hiring more people and expanding, that was enough. Later on, as competition grew, staying on top and ranking at number one was the epitome of success. As the markets changed, the ability to weather storms and not accumulate debt meant the company was ahead of the game. Today, the digital world is revolutionizing every aspect of commerce and retail. The idea of success is no longer keeping your head above the water. It is looking forward, striving for a steady platform that anticipates change and is able to seamlessly adapt to it. Not an easy task.

Yet, how is it possible to anticipate the road ahead? How does a group assess the needs it will have five years from now? Is it even possible to determine the marketplace in several years, as things evolve and alter so quickly? Specifically, in the field of lending, where accurate assessment is vital, is there a right way to prepare for the future? Can a lender have a real picture of who his potential clients are and their credit risk? Finding answers to these question takes a thorough examination of all and any available data. Once the essential information is assembled, a lender can comprehend where to invest their effort. Only then a true understanding of the necessary steps to take is possible.

Looking at the Numbers

Some questions might seem simple, but the answers are complicated. For example, the American ecommerce loan market is the main focal point for fintech lenders. One of the most crucial issues in figuring out the loan market size is determining how many ecommerce stores there are in the US. Yet, the answer is tricky. The rough estimate is that there are 1.3 million ecommerce companies working in the US today. While this may be true on paper, correct analysis shows that there are only 273,000 businesses that actually have web sales. This changes the picture completely in terms of lenders. Delving into the numbers brings a lender closer to recognizing where the target audience is.

Still, this estimation only gives a glimpse into the real lending market potential. In fact, 83% of these online companies, about 237,000 businesses, each make less than one million in revenue. Basically, only 35,000 companies make more than a million dollars annually. Making less than one million dollars per year, an ecommerce business is deemed too small to be worthy of a loan. Not just considering the complicated process of a bank loan. Ecommerce companies, whether profitable or not, have a hard time proving worthy of funding for banks, in any case. But with less than 1 million annual revenue, even alternative lenders might have a hard time them offering loans. Basically, 35,000 is the approximation of all the ecommerce companies with revenue big enough to ensure loans are returned.

Another Perspective

This may seem discouraging, but an alternative lender must contemplate other aspects. When all things are considered, is this the correct number of ecommerce stores with lending potential? In truth, there are more things to take into account when thinking about these numbers. Not all small businesses should be disregarded as lacking loan potential. As the online market surges and takes shape, large national and even regional retailers are starting out as an online presence. These entities are already recognized in terms of branding and customer base. This means that in several years they will no longer be in the small business category. While they are considered within the bracket of small businesses today, tomorrow the picture may be quite different.

Yet, there is another element which is important to remember. The field of ecommerce is brand new and as such, it is automatically perceived as unsteady and fickle. Especially from the view of the financial field. Loans are risky, no matter who is involved, and the financial sphere is understandably wary. Still, there is room for optimism, when all things are considered. For example, dentistry clinics do not make over one million revenue per year. If one considers the number of dentistry’s throughout the US, around 200,000 in 2018 it is fewer than ecommerce stores that are making sales. Are dentist clinics offered funding? Can they get loans? Of course. The only difference is the reputation of this field. It is a steady, reliable field and no lender assumes dentists will stop making money. Well, as the number of ecommerce businesses grow, this view of them being not worth the risk is quickly becoming outdated. One an alternative lender cannot afford to hold on to.

What the Future Brings

Looking at the overall picture of potential loans to small businesses in ecommerce, an alternative lender might decide the market is too small. Not worth the investment. Though these numbers may seem small scale, or discouraging, as if the loan customer potential is limited to a very small select few, ecommerce and online businesses are evolving. Not only are they the future of commerce, but of the entire financial world as well. As banks deny these small businesses funding, a much-needed void is becoming evident. The need for financial assistance is an issue that is not going away and the savvy lender should come to terms with this new frontier to be conquered.

Ecommerce stores are the future. Just like alternative lenders, they are not just revolutionizing the field but completely redefining it and changing its rules. All this is possible thanks to advanced technology, making all paperwork and bureaucracy redundant. The path to having definitive answers to difficult questions is in embracing the developments that are advancing the field. The future of loans will most likely be based on a combination of new and old. The age-old experience of lending experts and the data brought forth by new technology. The practicality of sizing up loan applicants through their credit history, combined with the new-found access to accurate analysis of their potential. Loan regulations and terms reformed by machine learning capabilities. In the words of the great Dylan, “the slow one now, will later be fast. The old road is rapidly aging.” As the times are truly changing.

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