By Ty Kiisel
For a small business owner looking for a loan to fund working capital or finance growth, Bob Dylan hit the nail on the head. The times are changing—and I think it’s good for small business owners.
It wasn’t too many years ago that a business owner looking for a loan didn’t have many options. He or she would visit the local bank, sit down with a loan officer, and cross their fingers. The lucky ones (in reality only 10 percent) would walk out of the bank with a loan. The other 90 percent would then trudge from bank to bank trying to find a banker somewhere who was willing to give them a loan.
It became even tougher as banks continued to tighten lending requirements to comply with regulators.
As a result, the last couple of years have been tough for small business owners looking for a loan from the local bank. However the news is not all doom and gloom. The last couple of years have also seen a lot of alternative lending institutions enter the market. They are not what would be considered a traditional bank, but they make loans to small businesses—a lot of them in fact. They offer loans like merchant cash advance loans based upon an average daily balance of credit card transactions, equipment loans, and numerous other specialty loans.
The cost of financing is typically a little higher than a traditional bank loan, but most of the small business owners who are rejected by their local bank are able to find a loan product to meet their needs with a non-traditional (or alternative) lender. What’s more, at Lendio we’ve seen a significant influx of alternative lenders enter the market over the last year—which is pushing the cost of this non-traditional financing down for small business owners. This is a good thing. Anything that gives small business owners greater access to capital at reasonable rates fuels business growth, creates more jobs, and strengthens local economies.
There are a couple of challenges associated with way small business financing is today that requires a paradigm shift on both the part of the banker and the small business owner.
Bankers need to change the culture within their banks. I think the days of sitting behind a desk and waiting for a potential small business loan to drop into your lap is over. Small business owners aren’t married to the local bank. Technology makes it possible to live in Phoenix and bank in Cincinnati. What’s more, there are banks in the U.S. who are aggressively going after business outside their footprint—that means your banker needs to be on his or her toes or business owners can go someplace else. There are options.
Business owners need to accept that the best situation for them might not be a traditional bank loan. There are loan products available that could provide financing for most (up to 85 percent) of the 90 percent of business owners who can’t get a loan from the bank. Alternative financing is good in the short term, but the climate looks even better for small business owners when we look down the road. There are really successful banks and bankers who have already made the shift in attitudes about how they approach potential customers and their small business customers are reaping the rewards.
The times are change’n, but I’m convinced that some of the changes are for the better.
We’d love to hear of any success stories you’ve had finding access to capital over the last year or so.