Jan 07, 2014 Sean Albert
Small businesses across the United States are finding it difficult to obtain the capital they need to expand. The Great Recession forced many major banks to tighten their lending standards. Although this has proven to be a challenge for American startups, it's a massive opportunity for alternative lenders.
Short term lending outlets have always been a useful source of funding for small businesses. In many cases, these financial service providers offer loan products that can be approved quickly. Whereas short term loans can be obtained in a matter of days, some small business loans from banks can take weeks to process and approve.
For this reason, non-traditional startup lenders may find success in the small business lending sector. In fact, a recent Bloomberg article noted that a number of innovative companies are creating practices and procedures that make it possible for them to extend credit to businesses with less than stellar credit scores.
Consider alternative credit information
One way these enterprises are able to accomplish this is by analyzing alternative credit data that the major credit bureaus tend to ignore when scoring consumers and businesses, the source reported.
Using this data can help lenders provide capital to local companies that may have poor credit rankings for whatever reason. With the effects of the Great Recession still lingering, Bloomberg indicated that many businesses still have low credit scores, despite recent growth in the economy and startup sales. With alternative credit information, lenders can make more informed decisions on loan approvals to determine if an applicant's score will improve in the future.
Boost access to education
Another way loan outlets can win the trust of startup leaders is by increasing their educational resources. According to Ami Kassar, a lender who writes for The New York Times, about half of his enterprise clients don't understand the terms of their outstanding loans. Moreover, once new clients sit down with his firm to discuss their financial strategies, 70 percent pursue loan products different from those they initially pursued.
Taking proactive steps in providing small business owners with access to comprehensive information about loans can be an effective way to drum up businesses. Creating educational pamphlets or even consulting with financial experts to hold and sponsor informational loan forums may also be useful strategies.
Regardless of the plans lenders put in place to attract small business clients, alternative loan providers should take advantage of the demand for credit many small business leaders have expressed recently.