Small Business Lending in 2014
Reports from surveys and studies conducted over the past twelve months appear to indicate that the lending climate for small business is improving significantly, with loans now being arranged by the banks far more frequently.
The upward trend is certainly encouraging and small business lending is in a far better state than at any point since 2009, yet the reality for most small business owners is little has changed. Over the past twelve months more loans have been approved by the big banks; however between 80% and 85% of loan applications are still being declined.
The figures indicate there are now more loans being approved by traditional lenders, but what is not clear is the extent to which this is due to the banks easing the lending criteria, or how much another year of solid accounts plays a part in getting approval for operating working capital or business equipment loans.
The lending situation has remained largely the same for startups looking to secure operating working capital to fund business equipment purchases, cover staff costs and other start up expenses until sales start to flow. Without any record of income or collateral it is all but impossible to secure new small business loans from traditional lenders. Without the option of obtaining loans through standard channels, fledgling companies opt for new small business loans from alternate finance companies to secure the funding necessary to get a new venture up and running.
It is not possible to make a clear comparison between alternative and traditional lenders, although figures for January clearly indicate it is the alternative lenders that are approving the highest percentage of loan applications and are bridging the gap and providing small businesses with the funding they need.
Throughout the US there are a number of new initiatives in place to make finance available to small businesses looking to expand. One such drive has been initiated by the Vermont Economic Development Authority (VEDA), following an award of $1 million from the USDA, with the aim of boosting small business lending to help create new jobs in rural areas. While initiatives such as this are ideal for small business owners looking to expand, these loans must be supported by cash flow and collateral, making them out of reach of many small businesses.
There is a current drive to improve lending to small businesses through the Small Business Administration to help create more local jobs, but there is still limited funding available and often strict qualification criteria to satisfy to be eligible for a small business loan. Furthermore, the paperwork and bureaucracy involved in obtaining a SBA-loan and what is often a long wait for the loan to be issued, means for many businesses it is simply not an option, unless a short term fast small business loan is taken out to bridge the gap.
The outlook for small businesses looking to raise operating working capital or obtain finance for investment is certainly positive, although in the short term at least, alternative finance companies may be the best bet to obtain a fast small business loan, until the banks become a lot more flexible with their small business lending policies.