SMB Owners Share Ways Online Lenders, Banks Could Improve

Static Historical Data vs. Growth Trajectories

A primary point of friction for responding SMB owners is the reliance by both traditional banks and online lenders on legacy credit models and historical financial snapshots to analyze their businesses, rather than on the real-time revenue velocity of these businesses. This structural methodology penalizes rapidly scaling operations and asset-light digital businesses, they said.

Put simply, some lenders today only use heavily weighted historical performances, frequently requiring personal guarantees and external collateral, even though a business may demonstrate consistent profitability.

Andrew Brown, Founder and Owner of Immediate Movers & Storage in Northwestern Indiana, detailed the mismatch in philosophies.

“Small business lending is handled by the majority of banks, with little respect for the owner’s past history in running their own small business,” said Brown. “One example was my experience meeting with a bank after three years of solid, steady revenue. I presented all of my clean, three-year revenue records to them, and I was still asked to provide personal collateral that had no relation to the new loan. This felt more like an interrogation process than an active and viable business partnership between the two companies.”

Failure to Recognize Velocity

By prioritizing past tax filings over current cash flow margins, traditional risk models responding  small business owners have dealt with fail to accurately assess growth-stage risk.

Rick Elmore, Founder of Simply Noted, pointed out the systemic flaw in this approach.

“Lenders underwrite your past, not your trajectory,” said Elmore. “I bootstrapped Simply Noted from scratch. Early on, the business was growing fast and I knew exactly where capital would go. But every lender I talked to wanted two- to three years of clean financials before they’d have a real conversation. By the time you qualify for most small business loans, you've usually already figured out how to not need them.

“What would genuinely help is more weight on cash flow trends and less on static snapshots. A business growing 40% year-over-year with thin margins looks worse on paper than a flat business with decent margins. That's backwards from how risk actually works for a growth-stage company.”

Incompatibility with Digital-First Enterprise Models

Several business owners said that the legacy valuation frameworks that lenders use lack the capabilities to underwrite intangible, modern digital assets, causing a severe capital mismatch for e-commerce, SaaS, and marketplace platforms.

Daniel Preston, Founder of Live In Care USA and digital marketplace operator, told Biz2Credit that “For digital businesses especially, lenders sometimes struggle to evaluate non-traditional assets such as SEO traffic, marketplaces, recurring memberships, software development, or brand value. Two companies with similar revenue can receive very different treatment depending on whether the lender understands the business model.”

Billy Rhine, founder and CEO of Horseshoe Ridge RV Resort in Texas, concurred with this assessment.

“Many banks still continue to use old-fashioned credit models to qualify customers, which tend to downplay both their cash flow performance as well as their customer base,” he said.

Seymen Usta, CEO of Wyoming-based Seus Lighting, also agreed, adding, "[Lenders] also seem to have very strict criteria that do not really reflect what it's like to have a small business. Many banks still continue to use old-fashioned credit models to qualify customers, which tend to downplay both their cash flow performance as well as their customer base. Online lenders are becoming faster at providing funds. However, they tend to lack clarity when providing customers with certain terms or conditions in conjunction with those same loans, which can lead to unexpected costs.”

Information Asymmetry and the Administrative Cost of Capital Acquisition

The SMB lending journey is generally characterized by high administrative burdens and low process transparency, said many of the SMB owners. Business owners routinely absorb significant opportunity costs, expending liquid operational hours to fulfill repetitive document requests, without insight into why some businesses get approved and others rejected. Below is a table of the pain points based on the responses small business owners gave, and can vary depending on each individual business.

The Cost of Opaque Explanations

When financial networks require deep documentation without giving visibility into the decision-making variables, the small businesses lose capital velocity, said the small business owners who responded

Neil Webzell, CEO of Trafalgar Wireless, contextualized this administrative drain.

“The most frustrating thing about lending to small businesses is that the entire lending process is often very vague,” he said. “Business owners are often requested to submit a multitude of documents ranging from bank statements to revenue projections to tax returns to debt schedules and payroll information. However, they rarely receive any insight as to which of these numbers are meaningful or why they might be denied a loan. As a result, there is a lot of wasted time and effort. In a small business, time is typically cash-flow.”

Eric Turney, owner of The Monterey Company in Oregon, added, “What annoys me most about small business lending is how often the process feels built around paperwork instead of the actual business. A lender may ask for documents they need, which is fair, but the process can still feel slow, repetitive, and unclear when owners are trying to solve a real cash flow or growth need.”

The Dangers of Post-Underwriting Rejection

A severe friction point is not an immediate rejection, but a late-stage structural change to a loan agreement after weeks of processing, said the respondents.

Nick Heimlich, Founder and Attorney at California-based Nick Heimlich Law, said that this as a critical systemic vulnerability.

“The frustration comes from the late surprise,” he said. “Business owners usually spend many hours preparing financials (often weeks), talking through loan terms, and making payroll expense plans based upon receiving a loan before finding out when they are almost finished going through the process without knowing that a covenant, collateral issues, a term within their personal guarantee or documentation gaps will completely change the loan agreement...Most small business owners don’t require softened language - they require early transparency. A quicker rejection is far better than a vague 'maybe' which causes uncertainty and freezes plans.”

The Dangers of Decision Delays

For agile small businesses, a multi-week delay in financing decisions can disrupt supply chains, payroll schedules, and inventory acquisition cycles, said some of the respondents

Terry Maltais, Vice President of Revenue at iTacit, stressed that slow communication between lenders and borrowers can kill funding deals. 

"Slow communication causes frustration because small businesses operate at a speed that makes it extremely difficult to wait two weeks for a vague 'no' as that can result in missed payroll, delayed inventory or missed growth opportunities,” said Maltais. “While obtaining a faster decision on whether or not they will receive funding is extremely important, obtaining a more definitive answer in plain language is equally if not more important."

How Can Online Lenders Improve?

To bypass traditional banking friction, some small business owners turn to fintech platforms. However, online lenders sometimes substitute processing speed for structural clarity, obscuring the true cost of capital behind complex repayment mechanisms and hidden fee schedules.

While online platforms reduce the time-to-funding, their lack of standardized transparent metrics frequently damages long-term trust.

Andrew Brown, CEO of Indiana-based Immediate Moving and Storage said online lenders need to provide more clarity on fees. “Online lenders are quick but do not provide clarity on their fees,” said Brown. “As a result of this unclear repayment structure, I have personally witnessed and talked with numerous small business owners who were burned by hidden fees in their online lender’s paperwork. Show me the full cost of borrowing: up front, not in the fine print, and I will trust you.”

What do Online Lenders Need to do Better?

Billy Rhine of Horseshoe RV Ridge Resort and Seymen Usta of Seus Lighting also gave identical warnings regarding fintech platforms,

"Online lenders are becoming faster at providing funds,” said Usta. “However, they tend to lack clarity when providing customers with certain terms or conditions in conjunction with those same loans, which can lead to unexpected costs for those customers."

Rhine went a step further, accusing online lenders of wanting small business’ balance sheets “to look like a tech company’s monthly recurring revenue (MRR). "The fix is simple and nobody does it,” said Rhine.

“Online lenders need to train their models on industry seasonality...let the loan officer see that yes, my March is fine and my August dipping is normal. Show me you understand what I do before you tell me what I qualify for. The lender that does that will get every dollar of small-business borrowing in our category for the next decade.”

The Product Suitability Gap

Online lenders also frequently market highly expensive, short-term debt structures under the generic umbrella of “business funding,” leading operators to inadvertently misalign their capital structures, said respondents.

Javi Pérez, who runs a small business editing independent consumer financing education websites, said that despite the funding speed that online lenders can provide, they need to prioritize structural suitability.

“Online lenders should separate speed from suitability,” he said. “Fast funding is useful, but many small business owners need help understanding whether the product is actually appropriate for their situation. A short-term loan, merchant cash advance, line of credit, and SBA-style product solve very different problems. Presenting them all as simply ‘business funding' can push owners toward expensive capital when a slower or smaller option may be healthier."