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Alternative lenders offer more funding for small businesses than banks

Jun 10, 2013 Philip Burgess

Due to tough economic times in recent years, banks and credit unions have been reluctant to provide loans to small businesses. Alternative funding options such as short term lending have helped small companies grow.

A recent infographic from Business Financial Services (BFS) highlighted the switch to non-traditional funding that has helped America's main street businesses weather the economic storm of recent years. After 61 percent of all bank loan applications filed by small companies were rejected last year, more than 80 percent of these firms used some outside funding source to expand. That's even with the overall rate of bank lending to small firms dropping by 68 percent between 2007 and 2010, according to​ the news source. The value of those loans also decreased by 55 percent in that period, taking inflation into account.

One of the advantages to using short term lenders to fund business operations is that monetary assets can be acquired faster than with traditional bank loans. As BFS notes, some small business expansion opportunities can be time-sensitive, meaning that short term options are more viable than credit unions and major banking institutions.

BFS data shows that alternative funding outlets offer quick and lucrative options for small business owners.

Useful option for many
Businesses and consumers alike have been able to take advantage of short term products, showing that these alternative lenders are versatile and important to the economy.

Despite the positive impact these loans have, many lawmakers want to severely limit the short term industry across the country. Currently, there are strict industry regulations on the books in many states. Moreover, 32 states actually allow the practice, according to the Community Financial Services Association of America.

Instead of preventing access to these products, lawmakers would be smart to help consumers and businesses be able to procure these loans.