The business loan industry has been going through exceptional changes since the financial collapse of 2008. Banks are slowly losing ground in the business loan industry. The reason for these changes stems from the banking industries unwillingness to provide business loans for local businesses. It makes sense how banks would be reluctant to provide credit considering how they were crushed by having too much risk in their portfolios. Also contributing to their tight lending policies is the government pressure to see that they qualify their clients for suitability, requirements that most borrowers today will not meet. Many advocates today argue that the banks’ unwillingness to lend money to small business is hurting the overall economy because small business is one of the largest contributors to employment in this country. However, these cries have only been answered with media campaigns full of lofty statistics that are meaningless for small business owners.
The latest media coverage as we near another election suggests how major banks are providing credit to the small companies in this country. The truth is that the small companies to banks are big companies to most regular business owners. The major banks classify a small business as having less than 20 million in assets. Most small businesses in this country do not have 1 million dollars in assets.
The largest factor though affecting business loans for owners today is suitability requirements. The government expects banks to know their customer in-depth, especially considering how much money was given in loans to people who could not afford them; an error in judgment that ultimately crushed the financial markets. The combination of an unwillingness to take risk with an almost unattainable suitability requirements makes getting a business loan from a bank out of reach for most people.
Since 2008, compounding the problem, more and more business owners have built outstanding debts with creditors and their credit profiles have suffered. As the economy seems to be at a subtle turning point many business owners might actually be able to turn their companies around with a small business loan. This is a cornerstone of the advocacy for more business loans.
As the business community has come to this boiling point many private lending companies have started to provide bad credit business loans (or below bank suitability) to many of these small businesses for significant premiums. The business loans are being paid back because the economy is coming to life and so are the borrowing businesses.
The shift from banks to private lenders has only fueled the alternative finance industry. More entrants come into the market, more innovative lending products are being provided, and a completely different landscape is developing. At one time, if a business owner needed a loan the only option was a bank, however, today banks are a second or third option if they are even on the list.
Bad credit business loans have helped many small business owners bring their companies back to life. Some owners are actually taking these business loans to expand. The private lending industry allows for financing in a matter of days, in amounts up to 1 million dollars, so business owners can capitalize on an opportunity quickly and justify the higher premiums.
If banks continue to remain on the sidelines alternative financing companies are going to become the primary resource for business financing. Bad credit business loans are a unique financial product that is slowly changing the way small businesses receive financing.