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Small businesses leaning increasingly on alternative lending

Jan 24, 2013 Sean Albert

As traditional short term lenders begin stiffening up their policies, many small businesses gravitate toward alternative lending methods. If a recent Sunovis Financial report is accurate, this trend is expected to continue in 2013.

"We have seen a noticeable trend in four separate areas of small business lending that are quite promising for small businesses in America," said Terry Robinson, president of Sunovis Financial. "We have built our business around providing small businesses with access to SBA loans. Seeing the potential that microlending presents, we also offer small business owners access to this dynamic lending model as well," Robinson added.

According to the study, alternative short term lending, also known as microlending, has become a common method of borrowing among small businesses. These loans are especially appealing to smaller companies because they are more easily available and take less time to receive approval.

A separate report by Biz2Credit found that alternative lenders approved 63.8 percent of small business loans in December 2012, following a 64.5 percent approval rate in November. By comparison, credit unions accepted 47.6 percent of small business loans in December, small banks pushed through 49.8 percent of requests and big banks approved 14.9 percent.

Alternative lending a positive for small businesses
Higher approval rates are far from the only reason owners of small companies should be happy that alternative lenders are gaining popularity. Forbes suggested that these businesses should root for alternative lenders to grow even more.

The higher the number of alternative lending firms, the more competition increases - and as a result, interest rates and the cost of capital will likely decline. With more options for small businesses, owners have better leverage for negotiations. In other words everybody wins.

BusinessNewsDaily highlighted some alternative lending options for small businesses, including:

- Asset-based loans: This focuses primarily on a business owner's available assets, providing companies with mediocre-to-poor credit a better chance to secure loans.

- Purchase-order financing: This also offers companies with poor credit - or even businesses that have gone bankrupt - with the opportunity to receive funding. Purchase-order financing simply provides lending for a company's purchase orders, and nothing else. These loans are far more limited in what they can be used for.

- Factoring: In addition to credit, factoring takes a number of aspects into account, such as credit risk management or the likelihood that a company will be able to return a profit.