Small business loans, at least the ones issued from a corporate or even neighborhood bank, aren’t as easy to come by as they used to be. Though lending may be on the rise from 2008 when all loans for small businesses plummeted due to the bank and economic collapse, it remains flat. Many small businesses, particularly those that have yet to establish themselves, are not able to get these long term loans the way small businesses used to a decade or so ago.
Many of these startups or businesses with poor credit scores or no credit are turning to alternative lenders to secure small business loans. These new online alternatives offer a range of products from short term to start up business loans in less time than a bank. As you might suspect, they do charge higher than your standard small business loan rates than banks. As these businesses aren’t able to secure standard lending, they have few other choices.
Banks Losing Clout in Small Business Loan Space
Though some have criticized such lenders for taking advantage of the market, others see this as the inevitable outcome of a flawed traditional lending system. Alternative institutions providing these small business loans are multiplying by number and issuing loans of considerable size. The stigma once associated with alternative lending has all but melted away as it is now viewed as the faster and in some ways even the better alternative.
Fast Small Business Loans Cost More
Moreover, some small businesses are skipping the lengthy application process required by traditional banks and opting for the alternative banking despite the higher small business loan rates. New technological advances and unconventional requirements for qualifying for small business loans are changing the foundation of lending.
Some industry experts believe that this trend may continue and traditional corporate banks, once viewed as almost untouchable, will have to adapt and change if they are to remain in business. These prosperous or forward-looking business are willing to pay higher interest rates to get their money fast rather than waiting 30-days or more for slow, corporate small business loans.