Delve: How FinTech Lending to Small Businesses Opens the Door to Bank Loans, with Paul Beaumont
Bank loans are the typical first step for most small and medium-sized businesses, but another form of business lending has emerged: FinTech companies that use algorithms to determine whether a business is worth the risk. Desautels Professor Paul Beaumont’s research has found that firms served by FinTech platforms have fewer tangible assets than bank borrowers—yet relative to similar firms that take out bank loans or were denied FinTech credit, FinTech borrowers experience a long-term 20% increase in bank credit after receiving their FinTech loan.
On the Delve podcast, Beaumont discusses why this change in bank lending appeal happens and what businesses are most likely to experience it, as well as what the longer-term outlook of FinTech financing on small and medium-sized businesses might look like, such as whether there will be an increase in successful businesses or certain types of businesses thanks to this alternative form of financing. Will banks start to change their tune about what businesses they fund in the first place?
“We have been lending the same way to small and medium-sized enterprises now for decades,” says Beaumont. “FinTechs constitute an innovation in the way we lend to firms. This is exciting because it means that finally we have invented a new business model to provide funds to small and medium-sized businesses… What we observed is that, in a sense, FinTechs fill the void left by banks when banks lend less often to small and medium-sized businesses.”
For more insights, read the article and listen to the full interview with Professor Paul Beaumont on the Delve podcast.
You can subscribe to the Delve podcast on all major podcast platforms, including Apple podcasts and Spotify.
Bringing Insight to the Surface
Founded in 2019, Delve is the official thought leadership publication of McGill University’s Desautels Faculty of Management. Under the direction of Professor Saku Mantere, inaugural Editor-in-Chief, Delve features the latest in management thinking that stretches perspectives, sparks new ideas, and brings clarity to decision-makers at all levels and across sectors.