Lenders for Small Business Loans Are Changing
It used to be that if you needed a small business loan, you walked into the local bank at which you had an account, met with a banker who knew you by name, and filled out a loan application. The credit crunch after the Great Recession, which began 10 years ago, changed the rules. Banks stopped lending to their own customers, who then sought other sources of funding. They researched by using the internet and thus began a dramatic change in how companies applied for small business financing.
Tech savvy alternative lenders quickly filled the void when bank lending slowed in 2008-09. Business owners could apply easily online and get decisions in 24 hours. Often the money came with high interest rates, but many small business owners had little choice. Cash advance companies and others were willing to absorb risk while banks weren’t. Entrepreneurs also found willing lenders on platforms such as Kickstarter and Indiegogo and other peer to peer sites, but those sources were not optimal for someone needing a $400,000 equipment loan.
Borrowers have access to a wealth of information about small business loans on the internet from sites including SBA.gov and the New York State Small Business Development Center (SBDC), which provides business counseling and training to aspiring entrepreneurs. These sites contain a plethora of information about small business financing.
Each month, the Biz2Credit Small Business Lending Index tracks approval rates by lender type. Options for borrowing money have changed vastly since the so-called credit crunch. Among the best places to obtain funding in October 2017 were:
Big banks, which approved 25% of the loan requests submitted in October. Big banks are approving one-in-four loan applications, compared to less than 10% during the darkest point of the post-recession credit crunch.
Small banks, which despite a slight drop in approval percentages to 48.9% in October from the previous month. Small banks process a large number of SBA-backed loans, which mitigate the risk for lenders and open opportunities for borrowers with little or no credit history. Almost half of the requests are approved each month.
Institutional lenders, which fund projects via online platforms, such as Biz2Credit. This category of lenders approved 64% of loan requests in October 2017, reaching a new high mark on the Small Business Lending Index. Global investors are entering the U.S. small business credit marketplace with success.
Small business owners have enjoyed more success in securing capital in 2017 than in most other recent years. With a strong economy and business optimism in the air, this trend is likely to continue into 2018.