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Online lending a life saver for many in society

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Study of online lending finds that it makes a big difference to business owners, their communities and the economy as a whole

Online lending does not just affect the fortunes of the borrower for the better.  It turns out that online lending also greatly impacts the economy as a whole.

Economic impact of online lending

A recent study by NDP Analytics found that between 2015 and 2017, $10 billion was lent online to 180,000 companies.  This has resulted in the creation of 358,911 jobs, $37.7 billion in gross output and $12.6 billion in wages reinvested in local communities over the past three years.

For every $1 lent to small businesses, sales increased by $2.31 and because of a multiplier effect, $3.79 in gross output is produced in communities across the United States.

Benefitting minority-owned businesses

There was a second surprising finding to emerge in this study.  Nearly a third of online small business borrowers are located in lower income communities.  Almost one-quarter or 24% of borrowers are companies with less than $100,000 in annual sales.  Additionally, two-thirds of these companies have less than $500,000 in annual sales.

The fact that companies looking online for capital are located in low-income areas is not surprising.  These are the same companies that have long been challenged in securing financing to grow their operations.  

While the U.S. Government has passed fair lending laws, results show that there is still more work to be done.  A study by the U.S. Department of Commerce  released in 2010 found that among companies with gross receipts under $500,00, loan rejection rates for minority-owned businesses were almost three times higher (42 percent), compared to non-minority owned businesses (16 percent).

The Minority Business Development Agency , a branch of the U.S. Department of Commerce found that a third or 33% of minority-owned firms did not apply for loans for fear of rejection.  Online lending platforms enable minority-owned businesses to apply for funding without having to deal with the stigma of dealing with rejection or cultural barriers.

Online lending is important to communities

When asked about the study, lead researcher Nam Pham, Ph.D. said “the economic benefits of online lending are far reaching and extend beyond the funding used by small businesses to maintain or expand their operations”.  He continued, “as these businesses succeed, so do the communities around them.”

Online lending and working capital loans have had a big impact upon small business borrowers and the economy as a whole.  Most importantly, they have enabled those who have not had equal access to traditional bank funding sources, namely minority-owned businesses to access the capital they need to grow their businesses and their communities.

We at Zip Capital Group are proud of the role that we have played in helping all businesses access the capital they need to realize their dreams.

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