How Alternative Lending Has Helped The US Economy And How It Works
According to the Small Business Administration, more than half of Americans own or work for a small business. In fact, small businesses create about two out of every three new jobs in the United States each year, making them an integral part of our economy.
Despite this importance, many small businesses continue to have a hard time securing the funding they need to grow and thrive – at least through traditional banking. If you’re a small business owner, you may have already learned this the hard way.
Why is it so hard for a small business to get a traditional loan? Let’s take the example of a small retail boutique owner who needs a loan but has little to offer in assets to secure it. Say this owner goes to her local bank and applies for a $20,000 loan. The odds are she won’t get a loan approval, but will instead walk away with a credit card application. This is because from a bank’s perspective, that’s about all they can do. Loans of this size simply are not profitable. The cost and considerable manpower required to process them don’t really move the needle for the bank.
In contrast, more agile online lenders such as Premier Business Lending leverage technology to cost-efficiently process hundreds of applications a month. This makes it entirely feasible for us to work with small business owners whose loan needs aren’t as large. In fact, we strive to deliver the best alternative to traditional bank loans by making our terms fair and our application process as easy, fast, and straightforward as possible.
The American economy relies upon small businesses for stability and growth. However, to grow, expand and ultimately succeed, small businesses require consistent and reliable access to capital. According to the U.S. Small Business Administration’s Office of Advocacy, young firms rely heavily on external debt, receiving about three-quarters of their funds from banks via loans, credit cards and lines of credit.
Data provided by the Office of Advocacy reveals that in 2013, over 5.4 million loans were approved for small businesses. Borrowing amounted to about $1 trillion — including $585 billion in outstanding business loans and $422 billion in credit from finance companies, with the rest from a mix of sources. The increased demand for quick and easy access to working capital has sparked fierce competition among lenders to provide alternative lending options that meet the needs of small businesses; however, the type of financing they require will vary depending on the industry and stage of the business.
Here are four principal reasons that small businesses need to borrow money and some alternative lending options available for each:
1. Starting a Business
The average cost to start a business can range anywhere from a few thousand dollars to over $30,000, depending on the nature of your business. It is often difficult to get approved for a loan because most lenders want to see a track record of success and profit.
If you’re starting a business and need start-up capital, first figure out how much you need. Then, look into raising the necessary funds. If securing a bank loan isn’t possible, consider reaching out to your immediate network of family and friends to raise the initial seed money or seek crowd funding agencies.
2. Expansion
Once you have your business off the ground and have established a track record of success, it may still be difficult to obtain a small business loan to finance business-growth operations. Premier Business Lending offers a credible alternative for businesses to get a quick loan.
In order to qualify, you must have at least $100,000 in revenue at the end of your first year in business, and a credit score of at least 500.
3. Purchasing Inventory
Product or retail-oriented businesses often require financing to purchase additional inventory, keep their shelves stocked and maintain profitability and reputation. Due to seasonal shifts in the number of sales and cash flow, businesses may experience a greater demand for a product at certain times of the year. An inventory loan can help bridge that gap.
4. Strengthening the Firm
Revenue-based financing is a great alternative for businesses that are growing and/or have a fluctuating cash flow that requires a more consistent stream of funds to keep the business running strong. There really isn’t a “one size fits all” lending solution for every business.
Chris Wilcox, Managing Partner with Premier Business Lending says “You’re going to want to choose alternative lenders that are focused on improving the experience, when applying for capital. If you’re an early-stage business or a start-up, focus on microlenders that have online loan applications. If you’re a later-stage business, focus on nonbank Alternative lenders that have online loan applications, or community banks/credit unions that have online loan applications.”
A multitude of options are available for small businesses to obtain the capital they need to start up, sustain operations, expand and ultimately succeed. Having a solid understanding of the options available and how they meet your business needs is key to determining the lending option that is not only best for your small business, but will offer a quick turnaround and quality user experience.
