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Alternative lenders stepping in for big banks

Aug 01, 2013 Sean Albert

Since the financial crisis, the nation's traditional lenders have scaled back commercial loan disbursement volumes, especially to startups and small businesses. As a result, alternative financial services have experienced exponential growth, assisting entrepreneurs, as well as already existing larger businesses, with their commercial lending needs.

Corporate executives should always look to obtain the most preferable loans, which can be achieved through thorough market research and a little patience. Alternative lenders come in all shapes and sizes, and are largely beginning to have a wider variety of options for business owners than traditional financial institutions.

Small business advantages
Main Street recently reported that small business loans coming from traditional lenders have continued to drop in the United States for a variety of reasons. Between the lower available funds to disburse among banks, new lending standards and widespread issues with credit scores among entrepreneurs and larger businesses, financial institutions are simply running out of options.

According to the news provider, one study from the Federal Deposit Insurance Corporation revealed that small business loan disbursement volumes dropped from a high of $713 billion in 2008 to $584 billion this year, representing an 18 percent decrease. It comes as no surprise, then, that alternative lenders are increasingly becoming the source of financing for small business owners.

Now, the source explained that traditional financial institutions are largely beginning to partner with alternative lenders in efforts to disburse higher dollar amounts to small business owners.

"Traditional lenders like the banks are recognizing the value in partnering with alternative lenders to service the small business customers who bank with them," Jeremy Brown, the CEO of an alternative lender, told Main Street. "They recognize having the ability to utilize lenders with alternative underwriting criteria enables them to access financing for their clients that may not fit their traditional criteria - enhancing the overall relationship with the customer."

Another expert in the field asserted that there are now hundreds of smaller, privatized alternative lenders that are beginning to increase efforts to penetrate the small business sector. Additionally, the news provider noted that weighing out the pros and cons of each option is essential when approaching any type of lending product.

Biggest alternative lenders getting bigger
The Wall Street Journal recently reported that alternative lenders, such as the operators of hedge funds, are stepping in as viable options for corporate executives in need of working capital. According to the source, the perpetual backsliding of the nation's largest financial institution threatened to critically damage and already ailing economy, though alternative lenders have filled the much-needed role in the interim.

Small businesses are responsible for the majority of hiring and gross domestic product in the United States, while entrepreneurs often cite access to credit as the single most important component of continued successful operations. Alternative lenders have helped small business owners get access to working capital in times of need, and thus have assisted in the overall economic recovery.

Businesses of all sizes can often benefit from shopping around for loan products from a variety of lenders, including those in the alternative financial services industry.