Bank credit criteria remains tight and lending parameters, both domestically and internationally, have become more standardized. In this tight-fisted banking climate, many small and middle market companies are unable to secure commercial finance through traditional sources, particularly if funding needs are immediate or their balance sheet is not up to strict bank standards. Fortunately for small business, there are alternative lenders to fill the credit gap. What is the best way to determine the right alternative lender for your business? There are many factors, a variety of asset based lending and other commercial funding products out there. It is important to fully vet options. The bottom line is that every client is unique and it is therefore important to work with a partner that is dedicated to understanding each particular industry, situation and company. With over a decade working in every type of industry, situation and challenge, Business Capital has the knowledge, integrity and reputation to deliver the optimum capital solution to clients.
From 2008 to 2011, business owners suffered. The economy crashed and bank lending to business owners came to a screeching halt. Most banks tightened their purse strings, while others got out of business lending altogether.
According to the SBA Office of Advocacy, the number of business loans dropped year over year from 27.2 million loans (in 2008) to 21.3 million loans (in 2011). The 5.89 million decrease in loans was an enormous drop off and represented an overall decrease of 21.6%. In terms of total dollars, the decrease meant that $104.5 billion in small business financing that would’ve been in the hands of business owners in 2008 were not in the hands of business owners during 2011.
I know what you’re thinking… “Yeah, yeah, yeah, Brock. We get it. So what?”
Let’s think together about the financial impact that this had on the U.S. economy. 5.89 million potential businesses were not going to get the financing they needed. Main street business owners — restaurant owners, landscapers, gas stations, and dry cleaners were all affected by the decrease. Dreams of expanding, hiring, purchasing inventory, and growth? Throw ‘em out the window.
As you can imagine, this represented a HUGE funding gap with tremendous demand for working capital. Fortunately for the business owner, other lenders decided to step up and take advantage of the opportunity — alternative lenders. From their perspective, there was a $104.5 billion dollar opportunity!
Early on, there were just a few. But, where opportunity abounds, so does attention. Others started to take notice of the growth opportunity and decided to jump in on the action. Over the past 12 months, Lendio has seen a significant surge in the number of alternative lenders that are stepping up to the plate to fill in the funding gap and provide loans to small business owners.
Small business owners should cheer.
As the number of alternative lenders increase, competition increases. As competition increases, interest rates decrease. As interest rates decrease, the cost of capital decreases. In the end, the business owner wins.
One of the business owners affected by the funding gap was a business owner named Paul. Paul had been in business for 3.5 years providing scientific and technological solutions to the U.S. military. He had received a sizable contract from the military (payment guaranteed) and was looking to get financing to fulfill on the purchase order. With purchase order in hand, Paul went to multiple banks to get, what he thought, was a slam-dunk loan. To his dismay, every bank he visited declined his application.
Thankfully for Paul, there were several alternative lenders anxious to attract his attention and he received multiple loan offers. As you can imagine, this put Paul in the driver’s seat and he was able to negotiate better rates and terms on the his loan.
2012 was a great year for alternative lenders and, based on how many new lenders Lendio is seeing, it appears that 2013 will be just as strong. Let’s cheer them on.