- September 20, 2016
- Posted by: admin
- Category: Funding trends
Top 3 Reasons Business Owners Use Alternative Financing
After the recession in 2008, banks and credit unions have tightened up their lending requirements and started focusing on loans greater than $1 million. By focusing upstream, banks left a huge funding gap for the ‘main street’ small businesses without access to capital. Understandably, if a business can’t access capital, it’s difficult to grow or expand their business. The impact on the economy is huge, with slowdowns in job creation and small business purchasing.
This is where alternative financing from online or marketplace lenders comes in. The alternative financing industry is a group of non-deposit lenders who have found innovative ways to serve these small business owners.
Recently, Manta ran a survey and asked business owners why they used alternative financing. They found that there were three major reasons small business owners used alternative financing over banks:
1. Did not qualify for bank financing
The number one reason people used alternative financing is they don’t qualify for financing from the bank. 38% of the people surveyed said they sought out alternative options when they didn’t qualify for bank financing.
“Small business owners have more diverse options today than ever before when it comes to funding their business,” said John Swanciger, CEO, Manta. “However, we’re seeing a gap between what’s available and the perception among small businesses that the lending environment has not improved. Even though traditional bank loans are difficult to secure, small businesses are still apt to rely on them.”
2. Needed a small, short term loan
According to the survey, many small businesses are actually just looking for a smaller, short-term loan. Because banks focus on the larger loan sizes, alternative financing is where these small businesses turn. In fact, many lenders provide ‘micro’ loans that are less than $25,000 dollars. With the way many small businesses are run, sometimes a few thousand dollars is all you need to get your business where you want it to be.
3. Fast access and convenience of online financing
One of the most highlighted benefits of online financing is how fast you can get funding. While banks and credit unions use 5-6 person loan committees that can take weeks or months to underwrite a loan, most online lenders can get you the capital you need in a matter of hours or days. Not only that, you don’t have to go to the bank to fill out the application, you can do it from any computer.
Old habits die hard. A lot of small business owners still feel that their options for a loan are limited to the local bank. Now, more than ever, that is simply not true. In fact, these smaller businesses are likely to find a loan that fits them better online or through an alternative lender. Obviously, not all of the reason’s small business owners who have used alternative lending are listed here. Have you used alternative financing for your business? If so, what was your reason?