In 2020, the number of companies that offer online and mobile lending is expected to grow. Since digital options provide extensive financing opportunities and faster approval, they are expected to be popular choices compared to traditional banks and credit unions.
In recent years, large companies like PayPal and Amazon have joined and made a big impact in the small business lending market. PayPal made $10 billion and Amazon $1 billion in loans to American small business owners over the last five years. Along with Square, they have become top loan options for small businesses.
Digital lenders' use of personalized offers makes them more attractive to small business owners. Brands have learned to target consumers based on their specific interests, and we expect more lenders to follow suit. To provide entrepreneurs with the specialized funding they need and at the right time, we predict digital lenders, like PayPal and Amazon, will increase their personalized offers to small businesses.
Peer-to-peer lending is also projected to increase among small businesses. With peer-to-peer lending, interest rates and loan offers are based on a business's earning potential rather than its credit score. As peer-to-peer loans become more common, the camaraderie within small business groups is likely to strengthen and grow. Transparency Market Research predicts the global peer-to-peer lending market will reach $897.85 billion by 2024.
March 2020: Traditional bank loans are difficult to secure for small businesses. However, Fifth Third Bank is hoping to bridge the gap with its new partnership with Fundation, an alternative online lender.
When banks don't qualify for traditional bank loans, this partnership will steer business owners toward alternative options. As alternative lending becomes increasingly popular, partnerships like this are projected to grow to accommodate the financing struggles of small businesses. For companies that fall short of Fifth Third's loan requirements, the bank will use Fundation's tools to help them access loans that reach $10,000 to $100,000. Their partnership makes the loan process easier and gives small business owners better access to financing opportunities. It also speeds up the process by giving small business owners the ability to accept and decline loan offers and sign contracts online.
As we move through 2020, it will be interesting to see if other traditional banks follow suit and form their own partnerships with alternative lenders.
April 2020: The effects of the coronavirus pandemic have left many small businesses in need of flexible support. SoLo Funds, an online lending platform, is offering interest-free, peer-to-peer microloans of up to $1,000.
May 2020: A number of online alternative lenders are joining traditional banks in processing Paycheck Protection Program loans. Earlier this month, the federal government released an additional $310 billion in funding for its forgivable loan program, which is designed to help small businesses stay afloat during the coronavirus pandemic. Fintech companies and alternative lenders, like Kabbage and OnDeck, are among those partnering with the Small Business Administration to distribute the funds.
Research from the Census Bureau revealed that about three-quarters of U.S. small businesses applied for a PPP loan, with two-thirds of those receiving one. As businesses continue to struggle financially due to COVID-19, we expect more alternative lenders to figure out different ways, such as this, to provide some much-needed financial relief for small businesses.