May 28, 2014
THE STATE OF ALTERNATIVE BUSINESS LENDING GOING INTO 2014
The year 2013 was a very good year in the alternative business financing industry. After going through some growing pains in 2008-09 with the bank meltdown and start of the recession, alternative lenders such as Accounts Receivable Factoring and Merchant Cash Advances have become very important for small business startups as well as businesses which are looking to expand.
Alternative business financing has almost become main stream today, as banks continue to turn down applications for business loans. Today traditional banks with their stringent requirements have been only approving businesses with â€œA credit.” This has left a huge void in the small business lending industry which is now being filled by alternative business financing lenders. Small businesses are always looking for fast access to working capital which they can use for many different reasons such as payroll, marketing, inventory, and cash flow. The great thing about alternative financing, is that business owners are now able to get access to this working capital even with poor personal credit and without the need to put up any collateral.
Small business owners usually do not mind paying a little more money to alternative lenders, because they know that trying to obtain a bank business loan will involve going through a very lengthy application process, involving tons of paperwork, headaches and red tape, only to later find out they were denied for the loan. With various alternative lenders, such as accounts receivable factoring and merchant cash advances, it is now possible to be approved in as little as 24 hours and have access to this capital in less than 1 week.
According to the November 2013 biz2credit small business lending index, the large banks (with 10 billion or more in assets) only approved 17.4% of loan applications This number is way below the numbers that existed back in 2005-07, when the big banks approved more loans than they denied. Compare those numbers to alternative business lenders who today approve more than two thirds of their loan applications.
The approval process and paperwork of an alternative lender is simple and it is much faster and easier than the application process you have to go through with a traditional bank. The entire process is being stream lined today by alternative lenders,who are utilizing new types of technology to make the process easier. These lenders can now approve applications in a matter of days rather than months unlike the application process of banks.
No longer does a business owner need to put up their house or personal assets as collateral for the loan and their personal credit score has very little impact on the decision making process of an alternative business lender. Today even credit unions are falling behind because of their rigid application process.
As we head into 2013 it is still not clear what implications Obama Care is going to have on the small business owner. However the housing market has stabilized, and unemployment is dropping from 8.5% in January 2012 to about 7% in December of 2013. I believe with the availability now of these alternative lending sources, more and more small businesses are going to be able to grow and succeed. Make no mistake, alternative business financing clearly plays a vital role and fills a real need for small business lending in the U.S. today.
In conclusion, 2014 is shaping up to be very promising for small businesses as well as the overall U.S. economy. One of the main reasons why businesses fail is due to lack of capital. The fact that these new type of lending sources now exist, means that much less small businesses will fail. The availability of fast access to working capital is now a reality and is readily available to small businesses at every stage of their development.
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