SMALL BUSINESS LENDING - THEN, NOW & WHAT TO EXPECT
When the recession started, we all experienced some level of tightening across the board. Several individuals were laid off and had little to nothing to live on; those who were still employed had less disposable income and became more frugal. This ripple effect continued as businesses mainly the retail outlet saw less consumer spending; dining out at restaurants became a luxury for many who chose to save money by cooking and eating at home. Small business owners who were not generating enough business like they once did had no reason to retain employees, let alone hire new ones.
Small businesses that had been in families for generations folded up because they couldn’t sustain themselves. Other businesses that were barely hanging on were too scared to expand by taking on business loans
. The fear of the unknown, what was to come in the next few days or weeks, was a deterrent to success for many. The general consensus was that doing nothing was better than taking chances and losing it all.
Some entrepreneurs were counting on banks to save the day by offering small business loans
. Unfortunately, this never happened because several banks had recently taken a beating from the meltdown that occurred in the mortgage industry. Banks that were heavily invested in the mortgage industry went out of business quicker than they expected. Learning from the mistakes of the others, forced banks that were still in businesses to introduce stricter guidelines in both commercial and consumer lending.
The effects of the stimulus measures taken by the government finally became fruitful as job reports revealed. As expected, consumer spending took a turn for the better. Small businesses that had been on pause for longer than they wanted were excited to be 3back on the map. Now more than ever, they needed that boost in funding just to get back to where they were pre-recession. Unfortunately business owners face the same setbacks they did during the recession, as banks are still not lending.
Fortunately for most, nonbank lenders have stepped in to aid entrepreneurs with small business loans. With their aid, small businesses are able to access needed funds to expand and grow. Through the aid of crowd funding, working capital loans
, merchant cash advances, microloans, invoice factoring and the likes, it’s been possible for businesses both startups and established to continue to flourish. These types of financing are commonly referred to as alternative lending.
As it continues to compete with the traditional means of financing, alternative lending is becoming very popular, and it seems it is the preferred way for small businesses at the moment. This will continue to remain so till the banks return to take back an area they once dominated. This could become very challenging for the banks as alternative lending sources have revolutionized the industry in general. The loan process has become a lot shorter, taking an average of 72 hours to get funding as opposed to months with banks. These sources have even limited the documentation needed to qualify for most of their loans. The process has been described by most as seamless. For now, traditional banks still have lower interest rates, but business owners are content with alternative financing because they know their chances of getting a loan are a lot higher.