News & Resources

Where is the small business lending market heading?

Sep 17, 2013 Sean Albert

In the years following the Great Recession, small business owners have had to battle against a variety of adversities, including a dramatic decrease in the accessibility of commercial loans. As a result, the alternative financial services market has become a much larger and more important component of everyday operations in the entrepreneurial community.

Larger banks, as well as credit unions and small financial institutions, essentially stopped lending to small businesses in the wake of the economic crisis, which forced many entrepreneurs to look elsewhere. Now, alternative lending appears to be thriving, despite improvements in the traditional banking sector. Small business owners should always consider all options before signing up for a commercial loan.

Alternative lenders step in
Businessweek recently reported that alternative financial services have rapidly shifted from relatively uncharted territory to the lending avenues of choice among small business owners. Despite the fact that many alternative lending programs will come with higher interest rates than traditional or government-backed options, entrepreneurs still seem to prefer these products.

The source explained that micro-lending has trended in recent years, with businesses looking to take out smaller loans more often than larger ones, and this has further ostracized traditional lenders. Since larger financial institutions and other banks have long preferred lending to big enterprises and disbursing high loan amounts each time, few seem to be interested in regaining footing in the small business market.

According to the news provider, alternative lenders have stepped in as more viable options for the average entrepreneur, especially as these firms have higher approval rates, longer terms and the option for customizable dollar amounts on each product. Though some lenders or owners were anxious to see whether the alternative financial services sector would continue to thrive following the economic recovery, it has become clear that these sources of credit are surpassing many expectations.

Look at the big picture
Small business owners should never commit to a loan program before evaluating all of the options on the table, as the variety of choices continues to expand. Each company will need a unique loan program to truly optimize cash flow, and the best options are often far off the beaten path of traditional financial institution-based lending.

While some businesses will benefit from using banks for their lending needs, new options such as crowdfunding and other alternative services continue to be more flexible than their predecessors.