Financial Technology

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FinTech 101: What is a Green Bank?

What Is a Green Bank?
You may have heard the term “Green Bank” and wondered what it meant. This short article will explain the term and concept behind it.

Green Banks in a Nutshell
A green bank is a bank that exists for the sole purpose of battling earth climate change by funding projects that may be able to decrease the global carbon emissions and increase the use of alternative and renewable fuels and energy. They tend to support infrastructure spending in wind, solar, and other renewable energy space.

Green Banks: Functional Model
Green banks are not climate charities. Their funding is expected to be paid back with a profit for the bank. Currently, they are supported by some states in the U.S. and also by private funding. Green Banks utilize philanthropic and public funds. They generally fund energy projects that beyond the research stage and “good to go”. The Coalition for Green Capital (CGC) is a nonprofit agency that is deeply involved in advocating for green banks’ continued development.

Where Did the Idea for Green Banks Originate?
The idea for green banks started in 2008 when two entrepreneurial-minded, Ken Berlin and Reed Hundt, came up with the concept as part of the Obama transition team’s plans for promoting cleaner energy changes in US society. A proposal to enact federally supported green banks was attached to the American Clean Energy and Security Act. The concept never made it as legislation at the federal level. Green bank supporters were not daunted. Consequently, green bank advocates persuaded some states to take up the cause.

Green Banks: Some Statics
Currently, there are at least ten states that have at least one green bank. In addition, they are in the early stages of catching on globally as well. They also exist in Australia, the United Kingdom, and Malaysia. Within the U.S., green banks have already been involved in the funneling of some $3 billion in funds for clean-energy projects.

Green Banks: Their Future Development
With the advent of the Biden presidency, green banks may again find a firmer footing at the federal level. Indeed, in December 2020, Mr. Biden proposed the idea of a national green bank. They appear sure to gain more traction internationally as the desire to dampen climate change takes hold.

Benefits Of Fintech For Small Companies Jacob Parker Bowles

Benefits of FinTech for Small Companies

Financial technology, known as FinTech, is changing the way many small business owners run their companies. Struggling to find financing from lenders and strict regulatory compliance is leading many smaller companies to focus on FinTech. Instead of relying on traditional lenders to help support their companies, many entrepreneurs are now turning to affordable solutions from financial technology companies.

 

FinTech Product and Service Offerings

FinTech companies offer a range of solutions for small companies. Business owners have access to lending, foreign exchange services, and digital business solutions. Many finance experts agree that the rise of FinTech is not just a passing fancy, but a real shift in the way small business owners generate revenues and profit. A report from the World Economic Forum suggests that FinTech will change the entire business environment.

From invoicing solutions, peer to peer lending, and supply chain financing, FinTech companies are gaining a real market presence in the business world with their low-cost solutions. Additionally, these companies are not hamstrung by the regulations that many traditional banks face.

One of the largest gaps FinTech companies fill is lending solutions. Traditional banks often turn away small business owners seeking smaller loans. By offering so-called “micro-loans,” FinTech companies provide a critical lending solution for smaller companies that need less than $50,000. The Small Business Administration considers any loans of $50,000 or less as “micro-loans.”

Many FinTech companies also offer strategic invoicing and expense solutions. In many cases, small business owners have free access to these solutions using easy to download apps.

 

Other FinTech Solutions

Lending and tracking invoices are only two of a countless array of solutions offered by FinTech companies. Property management companies can accept payments from tenants using the solutions. Additionally, loans are available to help some of the costs of repairs and security deposits that many residents struggle with while property management companies still receive those funds upfront.

 

Many experts agree that FinTech for smaller companies is still in its infancy. Adopting FinTech as the primary source of business solutions for entrepreneurs is still a challenge. However, many experts do agree that FinTech companies have found a niche by providing services to smaller companies that largely go unrecognized by bigger banks.

Fast Cash

Fast Cash is Like a Quick Draw

A new report from the Harvard Business School equates fast-cash loans for small businesses to the wild west. If you’ve seen episodes of the new HBO show Westworld, then you probably realize the wild west is not a place you want to be. Old-timey westerns like Gunsmoke and Bonanza, or everyone’s favorite cowboy, John Wayne, glorify the notion of the wild west, but if you were to step back in time to the lawless frontier territories of the late 1800s, you’d probably feel more like a host of Westworld’s futuristic theme park where mayhem is the rule than one of Ben Cartwright’s heroic sons.

Fast-cash loans for small businesses are the same way; in theory, they seem like a great idea- a way to get money quickly without going through the hassle of a bank. For small businesses just starting out, fast money would seem like the perfect solution to jumpstart their businesses by investing in the equipment and technology needed to get started and worrying about paying it back later. However, as with many things in life, there’s a catch.

The sector of alternative small-business lending has really taken off in the last few years, with the emergence of the new fintech (financial technology) industry. A few years ago, businesses would have to go through a bank to get a loan, providing various information and data like tax returns and financial statements. The whole process would take weeks or even months. It was especially difficult for small businesses to secure the loans they needed due to a credit gap, a lack of funds available for small businesses requiring smaller amounts of money, usually less than $250,000. Now, thanks to advancements in technology, a series of digital platforms exist, such as Quickbooks Financing, Lendio, Fundera, and NerdWallet, that connect small businesses with lending companies of a sometimes-dubious nature, such as Lending Club, OnDeck, BlueVine, FundBox, Kabbage, and Prosper.

Because fintech lenders rely on more digitized methods than traditional bankers, their process of getting money to small businesses is typically much more efficient. But here’s the catch: these lending companies don’t offer their services without a steep price to pay. They often charge exorbitant interest rates and hidden fees because federal regulators do not have control over small-business borrowing in the way that they do consumer borrowing. The Truth in Lending Act does not apply to small business transactions. According to USA Today, “A short-term loan can turn into a long-term nightmare.”

The Harvard Business School report identified the main problems with this type of lending, as well as potential solutions, which are as follows:

Problems

  • High costs: Lenders typically charge small business borrowers APRs (annual percentage rates) between 50 and 300 percent.
  • Additional and hidden fees: Borrowers are slammed with additional fees when they renew their loans and stacking (when multiple lenders give loans to the same borrower) can occur, resulting in additional and hidden fees. Also, unlike traditional loans, many of these fast-cash lenders require payment of the full interest even when loans are paid off early.
  • Misguided advice: Fast-cash brokers will often persuade small businesses to take out larger loans because they get the highest fees on them.

Solutions

  • Mandatory disclosure of APRs, fees, default rates and borrower satisfaction
  • An option to regulate nationally rather than state-by-state
  • Greater borrower security for small-business owners
  • Rules/guidance on partnerships between banks and new lending companies
  • Digital broker platforms should act in the borrowers’ best interests and disclose any conflicts of interest

As it is now, the fast-cash system of lending to small businesses is far from perfect; however, as with most new forms of technology, there’s certainly potential there: “There’s so much promise in the rise of lending to small-business market,” said Brayden McCarthy, co-author of the report. “It’s been ignored for a long time, but we want to make sure that disclosures are robust enough so borrowers know what they’re getting into.” It is especially important in the United States, entering into a new Presidency, that both lenders and borrowers are protected, co-author Karen Gordon Mills explained. Hopefully, once all the kinks are worked out, this fast-cash lending system will be a little more tame and a little less wild.

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