April 19, 2021 at 01:00PM

Small- to medium-sized business (SMB) sentiment today might be best summed up as a mix of optimism and anxiety. Amid the devastation that the pandemic has wreaked, it also has brought out the best of Main Street, revealing the resiliency of mom-and-pop shops and the tenacity of entrepreneurs to start again.

Case-in-point: 2020, the year of the pandemic and shutdowns, ended up also being a record-setting year for new SMB creation. According to Thomson Nguyen, founder and CEO of SMB neobank Hatch, the trend has continued in 2021.

“We have seen from our own customers this perseverance and grit through COVID,” he told PYMNTS. “We’ve seen restaurants that have spun up their delivery arms, or we’ve seen accountants that have spun up their initial websites and to take their business online.”

But every startup needs help, especially when it comes to banking and financial management. Unfortunately, according to Nguyen, there still remains a lack of available financial services for the startup and micro business community — and that’s a gap that threatens to stunt economic recovery. Addressing these young firms’ needs will require a targeted approach, he said.

A Distinct Customer Segment

Hatch officially launched on the market last week with new funding and a checking account offering for SMBs. With LendingClub Bank providing the banking services, Hatch operates as the technology platform vehicle through which young companies can access crucial banking services they need to operate.

Nguyen said those needs can differ from even more mature SMBs.

“What we’re noticing is that for an emergent class of creators, sole proprietors and people who are starting their businesses, they really have different needs than larger, mid-market SMBs,” he said, adding that there exists a “blurry line” that differentiates sole proprietors and micro-businesses that will eventually grow into the category of “SMB.”

Historically, these businesses are too small to be considered profitable enough for larger financial institutions (FIs). Even emerging FinTechs tend to target larger SMBs. But through industry collaboration between banks and FinTechs, service providers have the opportunity to develop solutions designed for micro-firms without giving up the quality and security offered to larger businesses by traditional banks.

Access To Capital

The smallest and youngest of these firms need two things from their banking providers, according to Nguyen: a checking account and rapid access to capital.

Bank collaboration has opened the doors for FinTechs to connect micro firms to checking account and depository services. But bridging the financing gap can be a bit of a larger challenge, considering startups lack the financial history lenders require to underwrite financing products. Alternatives are difficult to come by, too. While many SMB business owners who are unable to access a business loan turn to personal credit cards to finance their operations, some of the newest SMBs can even struggle to take this route to financing.

“For micro-SMBs, and even if we look at recent immigrants or people who have impaired credit, they’re not really able to obtain high-rewards credit cards — either business or personal credit cards — for their small business operations,” said Nguyen.

Hatch is tackling this issue through lines of credit as well as a debit card linked to a rewards program. Banking products for the smallest of businesses must be highly functional, but just because these companies are new to the market does not mean business owners do not demand a better banking experience. Today, Nguyen said features like fast onboarding and credit decisioning are must-haves, not just nice-to-haves.

Nguyen remained mum about whether the company might ever consider applying to become a bank itself, or what products and features could be next to rollout. But in the meantime, as more new businesses emerge, and as economic recovery hinges largely on Main Street, micro-SMBs will need support from the financial services sector in order to drive recovery forward.

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