As the months slowly pass by, there are many things in the business world that continue to change or evolve. But, one constant over the last two years is that loans to small businesses from traditional lenders like banks and similar financing companies are still extremely hard to come by.
Banks and other financial institutions remain tremendously skeptical about what tomorrow will bring. Some banks cite over regulation by the government while others tout that they are just not seeing qualified borrowers.
Regardless of the reasons, small firms continue to struggle in finding business loans from traditional sources to help them grow and succeed.
This has created an enormous funding gap for small or Main Street businesses in this country.
Small businesses are one of the (if not the) strongest economic driver in our nation. Small and Main Street businesses provide jobs, wealth and opportunities in the communities in which they operate – communities which ebb and flow with the strengths and prospects of their local businesses.
However, from the bank side – they also create the greatest risks – risks that banks continue to NOT want to take.
The old saying – the bigger the risk, the greater the reward. And, to achieve that reward, we have to find ways to make the risk work in this new economy. And, some new non-bank lenders are indeed finding ways!
Leave it to the ingenuity of entrepreneurs in this country to come with new stop gap business loan products and services – all designed with the small business or Main Street businesses in mind.
Many new non-bank lenders are stepping up to fill the small business funding gap left wide open by banks. These business loan products are usually easier to qualify for and can be funded much faster than traditional loans as these new financing companies understand the real needs of small businesses and the opportunities they represent.
Some of these new lenders have been changing or modifying traditional business loan products to meet this new small business financing demand. Example:
There has been significant changes and growth in non-profit lenders like Micro Lenders where a new business can qualify for a loan up to $35, 000 but now also where an existing business can receive a business loan upwards of $50, 000 – all designed and marketed to and specifically for small businesses.
There has also been a sharp increase in peer-to-peer lending or social network lending. While these are still designated as personal loans (most business loans to new businesses are personal loans – guaranteed by the business owner) they offer (and are now being marketed too) small businesses as a quick and usually low cost means of securing a small loan to help them overcome a slow month, meet payroll obligations or to take advantage of new opportunities to grow the business.
There have also been new breeds of business lenders entering the market. Some have taken traditional loan vehicles like accounts receivable factoring or business cash advances and tweaked them to better meet the needs of smaller firms (firms with potential but not yet profitable) while others have created a completely new way to view a business’s financial strength with a focus more on cash flow than profitability or time in business.
To reduce the risk of default; most lenders – bank and non-bank – like to fund on the basis of the conversion of assets. This allows these lenders to focus less on the overall financial condition of the borrower and more on the strength and make up of the asset used as collateral. Thus, when the assets actually convert into cash (like a customer paying its invoice) those funds are used to pay-off or pay down the outstanding loan balance. This has, in the past, allowed businesses and their owners a means to financing that they may not have gotten otherwise due to time in business or years of profitability limitations.