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Trends in small business lending, alternative financial services

Aug 10, 2013 Sean Albert

Since the height of the economic downturn, the small business lending landscape has shifted substantially, with alternative financial services beginning to be a major component of recovery. Since larger, traditional banks were forced to reduce disbursement volumes and approval ratings, many entrepreneurs - as well as executives in larger enterprises - started to look toward alternative finance options.

Experts have largely stated that alternative lending has been a substantial assistant to the overall economic recovery, and will likely continue to be a prominent force for years to come. With all of the different loan products, as well as often higher approval ratings and quicker turnarounds on applications, alternative lenders provide a unique opportunity to businesses of all sizes.

Latest index figures are in
The Biz2Credit Small Business Lending Index for July was recently released, and showed that widespread improvements in the economic landscape have assisted entrepreneurs in the fight to create and expand their companies. According to the report, total small business lending approval ratings increased substantially between June and July, and even more so when compared to the same period in 2012.

Biz2Credit found that approvals at small banks were slightly lower than June's figures, while larger financial institutions increased the rate of disbursed funds per applicant in July. Last month also marked the first time in several quarters that approval ratings at credit unions increased, which ended a significant slide.

However, even with these improvements in traditional lending channels, alternative lenders still remain in a comfortable lead when it comes to approval ratings. Big banks approved a record 17.4 percent of loans, while alternative lenders approved 63.2 percent of all applications. The next closest contender, smaller banks, only approved 49.4 percent of applications last month,

Biz2Credit noted that approval ratings among alternative lenders decreased slightly compared to June. However, increased competition between these different institutions is a mark of a revived economy.

What this means for the future
Most indices will give a better perspective on what economic conditions will be like roughly four to six months down the road. Spikes in small business lending disbursement volumes are almost always indicative of substantial improvements in employment, gross domestic product and entrepreneurial confidence within the next one to two quarters.

Small business owners should always evaluate all lending opportunities, including the wide variety of alternative programs, before making a decision. Some of the best-suited loan products might come from the last place an entrepreneur would look.