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A look back at small business lending's evolution

Sep 24, 2013 Sean Albert

There is no doubt that the economic crisis led to a dramatic and rapid evolution in small business lending, with alternative financial services stepping into the forefront of loan disbursements to entrepreneurs. It should come as no surprise that the average business owner, and consumer for that matter, is less interested in traditional banking products considering the involvement of major financial institutions in the recession.

Now, seems as though the economic situation in the United States has improved to pre-recession levels, though some aspects will likely never return to the trends that were taking place before 2008. Despite the fact that big banks, credit unions and smaller financial institutions are beginning to increase loan disbursement levels to small business owners, entrepreneurs continue to tap alternative lenders more often than ever.

Remembering the fall
Fox Business recently reported that this September marks the five year anniversary of the Lehman Brothers declaring bankruptcy, which was one of the most influential drivers of the economic recession. Considering Lehman was one of the largest investment banks in the United States, the financial situation in the nation was pushed over the edge by this issue.

According to the news provider, the small business lending market was dramatically different in 2008, with big banks approving roughly 45 percent of all loan applications before the Lehman Brothers collapse. Since then, the rate has fallen all the way down to 10 percent, and has just now begun to approach roughly 17 percent in the past two months.

Smaller banks and credit unions likewise tightened lending terms and approval rates, putting the average entrepreneur in an extremely precarious position. Most studies have indicated that small business owners will almost always cite access to credit as the most critical component of starting, expanding and continuing operations.

The source explained that just as necessity always leads to invention, new forms of alternative lending spread through the nation like wildfire. While there were always several options out there that moved beyond traditional lending products, today is marked by an endless variety of more competitive loans coming from relatively new sources.

Fox Business added that technology has been the major leveraging force for alternative lenders, as these sources have used advanced tools to better serve the entrepreneurial community.

Don't only look in one place
Small business owners are now in a better position to get the credit they need than any time since before the recession, and maybe even stretching further back into the past. Traditional lending channels are experiencing a resurgence, while alternative lenders continue to expand offerings and approve a higher rate of loans.

The only mistake an entrepreneur can make is not looking into all of the options that are on the table, because the best possible choice is usually right around the corner. When in need of any type of loan, regardless of the size or the reason for applying, small business owners should always conduct thorough research to find the right source of credit and the perfect product.