Many small business owners try to keep cash in hand to cover payroll and any other contingencies they may have month in and month out. If some small businesses have problems meeting payroll that month, they have to come with a solution right away. Small business loans are a solution for them, but sometimes the terms of the loan are not worth the trouble. Small businesses are the most susceptible to scams, or poor loan rates that eventually are more harmful than not. Before you signed on a loan that you really need, be careful what you are signing for, understand the terms, and borrow only what you need and not more. Shop around first, and if a bank is not offering the best terms for you, there are many others that will want to work with you, and your business.
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SMALL BUSINESS ALTERNATIVE LENDING: Alternative roads to capital will add billions to the small business lending market.
Small businesses are the backbone of the US economy. Small businesses — businesses with less than 500 employees — represent 99% of US companies, 54% of total sales, and 55% of all jobs, according to the US Small Business Administration. And these businesses need capital in order to grow.
But small businesses are underfunded — only half of small businesses with $100,000 to $1 million of annual revenue received at least some of the financing they applied for from large banks in late 2015. This is partially because banks have retreated from this segment because issuing loans to small businesses using the traditional underwriting model is expensive. This leaves a massive amount of unfulfilled loans that we estimate reached $96.5 billion in Q4 2015.
Alternative lending companies have stepped in to capitalize on the opportunity available in helping meet more small business’ lending needs. Alternative small business lending platforms use machine learning and digital tools to extend credit to a wide array of small businesses quickly and efficiently, particularly to those that have been rejected by banks. Alternative small business lending companies provide digital platforms that connect small business borrowers to capital using nontraditional means.
Small Business Loan Approval Rates Surge
Big banks have long been accused of turning a blind eye to small businesses’ credit needs, but things are changing for the better now.
According to the Biz2Credit Small Business Lending Index, March 2016, the monthly analysis of more than 1,000 small business loan applications on Biz2Credit.com, loan approval rates at big banks and institutional lenders has hit new highs.
By contrast, approval rates declined slightly for small banks, credit unions, and alternative lenders.
Key Highlights
Some of the top findings of the monthly study include the following:
- Big banks approved 23 percent funding requests in March, up two-tenths of a percent from February 2016,
- Institutional lenders improved their approval rates to 62.8 percent, up from 62.7 percent in February,
Chase Quietly Launches Its Online Small-Business Loan Platform
Following months of behind-the-scenes work with OnDeck Capital, JPMorgan Chase has quietly started offering online loans to its existing small-business customers.
The New York megabank launched its digital lending platform on a limited basis last week, spokeswoman MaryJane Rogers confirmed Monday.
Existing Chase small-business customers are being prescreened, and some of them are being invited to apply for loans of up to $250,000, according to Brian Geary, director of platform solutions at OnDeck.
JPMorgan has roughly 4 million small-business customers. The bank declined to say how many of those clients have received invitations to apply for a loan, or when its online lending platform will be opened to a broader group of prospective applicants.
