Alternative Lending Options for Your Clients
While businesses of all size felt the wrath of the Great Recession, studies show that small businesses were hit hardest. And, one of the small business areas that felt it the most was their access to credit.
Unfortunately, although other areas are recovering or have recovered post-Recession, small businesses’ access to credit hasn’t.
Bank lending to small businesses is at an all-time low. We’re talking 14 million small businesses each year not getting the funding they need to grow. It’s a tough time to be a small business with big dreams.
When your clients came to you in the past and asked where they should go to get a loan, you probably had a local bank you referred them to you. But, what do you do now when your clients fall victim to the credit crunch and tell you that very bank told them no?
Chances are, you’ve heard a little bit about an industry called “alternative lending” and wondered, “Okay, but what is it?”
As often happens, when there is inefficiency in the market, technology jumps in to fix it. And, that’s just what has happened in the small business lending space.
Online “alternative” lenders have sprung up to fill the void left by the banks. Not only are they filling a need, but they’re also doing it differently than the banks. Their technology allows them to underwrite faster. More importantly, their robust algorithms take into consideration other things than just the credit score, opening up opportunities for those with bad credit.
Even though it’s still in its infancy, alternative lending is already a vast industry. It can be difficult to figure out what makes these online lenders different – and who is going to offer the best products for your clients.
To help you navigate, here are some “need to knows” about the alternative lending industry:
SBA Loans Can Now be Found Online
One of the best products available to small business owners is SBA loans. SBA loans are essentially bank loans, but a portion of them are guaranteed by the SBA, which means banks are able to lend to riskier borrowers. With single-digit interest rates and large loan sizes, it’s no surprise that it’s such a sought-after product.
That being said, SBA loans have been notoriously hard to apply for. The applications are extensive, and it can be difficult to figure out where to start. But, all a business owner has to do now is search for “SBA loans” online, and they’ll have their pick of potential lenders. With the entire process being online, it makes it even easier to utilize their accountant when they need advice or a particular document. You can even help your client complete parts of the application! Either way, it’s great to see such a small business-friendly loan product online.
Diversity of Product
With alternative lending, it’s no longer just about traditional long-term loans and lines of credit. Online lenders have introduced completely new classes of loan products.
For example, there are short-term loans, which are loans that have terms 3 to 18 months in length and are paid back daily by ACH payments. This is a great solution for businesses that are trying to fulfill a very short-term cash flow need. And, because of the shorter nature of the loan, lenders are able to work with riskier borrowers.
Another example is invoice financing, where lenders use a business’ outstanding receivables to collateralize a cash advance.
This is just beginning. There’s no telling what new products alternative lenders will introduce down the road.