Small Business Loans Create a Healthy Economy
There are three types of businesses in the economy, the large aggressive corporate companies with names that everybody knows, the medium sized companies that are approaching the aggressive stage or just left the small stage, and then there is the local “mom and pop shops” and other small businesses that are only known to the residents in the immediate area or their clients. Although all of these business types utilize or can benefit from the use of business loans, it is the really small businesses that have the strongest impact on jobs and the health of the overall economy. It is at the smallest level of business where additional financing is so critical and can be the difference between a company remaining open and moving to the next level or going out of business. So why are business loans so hard to come by for small businesses when they play such an important role in the economy?
According to the most recent statistics The Thomson Reuters & PayNet Small Business Lending Index fell to 98.5 from February’s 105.4. The reason why these numbers are so important is because small businesses are one of the biggest contributors to employment in this country and the overall economy. A recent employment report by ADP shows that out of 119,000 jobs created in April, almost half were created by small businesses and an even more important number was that companies with less than 20 employees created almost a third of those jobs. There is no doubt that the small businesses in the community are driving this economy and all the more reason why funding these companies in a timely matter is important.
The most common reason why small business owners do not have access to working capital is because they do not believe there are places to acquire a business loan for someone in their situation. Generally small business owners in the early stages of their business acquire a lot of debt and often see a dramatic hit to their credit scores. This is not necessarily attributed to bad management; it is the struggling economy, natural business cycles, and a host of other reasons that can contribute to negative credit history.
Now a business owner in need of additional money will likely visit their local bank first and get denied funding as a result of credit factors or just a result of a tight lending market. This is the point where most business owners try to juggle through the tough times and hope for positive shifts in the business, however, for many of these businesses that boost never comes and they ultimately fail.
One shining spot in the area of business financing is alternative lending. Many small business owners do not know this type of lending exists but alternative lending companies can be found online and they offer business loans to small business owners. Online lenders allow much more flexibility and have much higher approval rates than banks because the alternative funding process uses the strengths of technology to get improved and more recent data on applying businesses. Business owners that might not have perfect credit but have a great business model and reputation are prime funding candidates. Also, because the business loan application process is streamlined many business owners can apply and receive capital sometimes in a matter of days.
Small businesses continue to be a great contributor to our economy. More of these smaller companies would succeed if they had access to working capital. Alternative lenders have filled in where the banks have lagged which is a good sign, but more small business owners need to know they exist for the programs to work. It is a very good possibility that more businesses will succeed and our economy will trend in the right direction if more small business owners have access to funding resources.
- Business Loans for CoronaVirus Affected Small Businesses - March 21, 2020
- Top Business Resources for Women Veteran Owned Businesses - March 5, 2020
- Small Business Borrowing Success Stories - February 5, 2020