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04 15 2013

04 15 2013

More Small Business Loans Borrowed from Alternative Lenders

According to a recent Forbes magazine article, small business owners take out about $300 billion in small business loans from banks each year, yet banks continue to underserve them. The article reports that on average, big bankers prefer to dole out millions to larger companies, while often committing substantially less funds to small businesses because they see smaller organizations as risky. Banks that lend typically rely on the credit score data of the business owners as a shortcut for due diligence, and small business owners are often more likely to have lower credit scores and incur higher interest rates.

A New York Times blog post recently acknowledged that sometimes banks blindly refuse to lend to small business owners and entrepreneurs. Since they are not generating as much income as bigger organizations, small business owners often are more likely to have credit card debt, lower credit scores, smaller streams of income, and other red flags that tend to cause banks to shy away from lending.

While big banks seek out already established companies to use their lending services, many small business owners find they can turn instead to alternative lenders. CNBC News reported that the majority of small businesses with under $10 million in annual profits can secure their merchant cash advance and loans through smaller lenders. Each alternative lender typically relies on its own system to comprehensively collect data and evaluate potential borrowers to get a fuller picture of the business owner. More recently, alternative lenders have begun using technology to inform the decision-making process. Some are using online databases and social media rankings to assess small business potential.

Small business owners who are ready to secure funding with a small business loan or merchant cash advance may want to consider working with National Funding – an industry leader that provides financing solutions to small businesses.

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