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Alternative financial services remain critical to small business lending market

Jan 07, 2014 Sean Albert

The small business lending market has been extremely turbulent throughout the years following the recession, although credit conditions seemed to have started to stabilize in the past several months. Entrepreneurs are using a more diverse range of products to access the loans they need, and many of the most popular channels are within the alternative financial services market.

Larger financial institutions, smaller banks and credit unions all experienced significant tightening in lending terms because of economic uncertainty, but this trend is beginning to flip. As these traditional loan distributors become more active, all eyes are on the alternative lending market to see how it fares amid a more stable and preferable economic situation in the United States.

Alternative lenders stay on top
Biz2Credit recently released its Small Business Lending Index for November, which revealed that several types of loan distributors increased their approval ratings last month. This is welcomed news, as many analysts and economists were concerned about the long term effects of the government shutdown and other issues that occurred earlier this fall.

While large and small banks both increased their approval ratings substantially, alternative lenders remained well ahead of the pack. Approval ratings from alternative lending channels did drop slightly in November - from 67.3 percent in October to 67.2 percent in November - but are still far higher than the 17 percent and 49.7 percent seen among larger and smaller banks, respectively.

Rohit Arora, chief executive officer of Biz2Credit and one of the managers of the research, explained why he believes alternative lenders are continuing to become more legitimate and successful in the entrepreneurial community.

"The popularity of alternative lending continues to increase as the desperation of small business owners to acquire capital becomes more urgent and because alternative lenders' interest rates have dropped considerably," he said. "The vast majority of alternative lenders are no longer 'legalized loan sharks,' as was frequently the case a few years ago. New players continue to enter the small business lending market."

More to come in 2014
Small business owners are likely working out their financial plans for the coming year, and should always consider researching alternative loan options alongside more traditional products. Alternative lenders came onto the scene in a big way during the recession, and continue to become more advanced and offer more beneficial products to small business owners. This trend will likely continue to intensify in 2014.