I remember that when I was at the early stage of my entrepreneurial journey, I have this mindset of starting a business using funds from bank loans. Unfortunately, today, small business loans are harder to come by.
Scott Shane mentioned in his article that, according to a survey, 30 percent of respondents said that getting credit in the past year was difficult. This figure is up from 14 percent in the same period of 2007.
But why small businesses borrow less?
Well, there are many factors contributing to the trend, but Scott also mentioned that small businesses aren’t as attractive to lenders as they used to be.
Cash flow issues
Cash flow is one of the biggest issues why lenders are reluctant in approving small business owners’ loan proposals. A proof: From the same survey, in Q1 2013, only 48 percent of small business respondents said that their biz’ cash flow is good; that’s quite a drop compared to 65 percent in 2007.
Bank’s stricter lending
Banks are not lending to small businesses or individuals as freely as before. Latest go for the site for money asap successfully. In any case, before you point your fingers to banks, consider this: They are struggling to handle problematic credits. They need to stay in business, and the only way to survive is to get their lent money back – which is a major issue for most banks today.
Want proof? Consider this: In the same article and the post on small business loans, Scott Shane pointed out that small business credit scores have fallen – from an average PAYDEX score of 53.4 in 2003 to 44.7 in 2011.
Are there alternatives for small business loans?
Yes, there actually are. Small business owners are slow to explore the new funding sources, and they are now still very much up for grab.
Consider this: Crowdfunding
The biggest upside of having crowdfunders fund your small business is the fact that you may not even have to face rejections; just go to the right crowdfunding platform, pitch your business or project and get people’s support in raising the fund.
Crowdfunding is one of the most popular funding sources, these days. Google’s investment in peer-to-peer lending site, Lending Club, can be a good indicator of how crowdfunding market is huge. More lenders, better access for funding – if you know how.
More alternative: Cash advances for small business
There’s a success story of online comic book retailer Robert Abendschoen, who use cash advances totaling $50,000. One of the lenders he borrowed from is Kabbage, an online lending company. In just 5 minutes, he secured $5,000.
Using the loans, he expanded his inventory and increased his small business’ annual revenue by 50 percent to $500,000 in 2013.
On Deck and IOU Central, two more alternative lenders to banks, also boast quick approval – typically 1 or 2 days – and a good average of $30,000 lent out to small businesses. Despite the hassle-free process, you should be aware that cash advances carry hefty interest rates and fees, with effective annual interest rates of 20 percent to 60 percent.
Need more alternatives?
You can explore more on non-bank lenders from a community blog on SBA.gov
