Years ago, a small business owner may have been able to go to his neighborhood bank, fill out some paperwork, and receive that small business financing they were seeking. A handshake and some perfunctory assessment of the business’s history and financials were all that was needed to secure a small business loan.
Yet since the 2008 financial breakdown, banks have become far more cautious in issuing short term, long term and start up business loans due to a tightening in regulations. So who regulates the banks? According to the FederalReserveEducation.org, an array of institutions and entities varying by state and local government, regulate corporate and neighborhood banks, including the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS) and others. Such institutions play different roles in regulation but all of them are meant to protect the nation’s economic stability.
Regulation: A Help or Hindrance in Obtaining Funding For Small Business
Though these entities were put in place to help protect consumers and businesses, many now believe they have become a hindrance making the issuance of small business loans overly dependent on near-perfect credit scores. Once meant to guarantee the money in your bank would still be there tomorrow, some now believe the regulators are dragging down economic growth. By not permitting banks to issue small business loans as they see fit due to regulations, what is a company seeking small business funding to do?
Alternatives Charge Higher Business Loan Rates
With so many companies being turned down by banks for having less than perfect credit scores or blemished financials, the banking industry has found a way to self-correct in the form of alternative lending institutions. Such alt lenders, which are largely unregulated, provide small business loans and even startup business loans to such companies. They do, however, charge significantly higher interest rates, which have come under fire by critics in recent years. These critics believe better regulation is needed to rein in these high interest rates and better protect consumers. It remains to be seen if the government will mandate regulation of these alternative lenders and if so, what the impact will be?