How small business lending has changed since 2008


By David Gens, founder and CEO of Merchant Advance Capital

Special to the Financial Independence Hub

The small business lending landscape today bears little resemblance — functionally, structurally or in terms of customer priorities — to what it was at the moment of the 2008 financial crisis. The intervening years have seen the creation of many new alternative finance companies, who are able to efficiently deliver credit by leveraging technology. Here’s how these developments affect the range of choices among your borrowing options.

Online lending growth consistent, lenders gain trust

Conventionally, a small business owner would attempt to reach out to a major bank for financing: a process that has become less and less viable as banks become less willing to accept the risk of lending to new businesses with limited credit profiles and limited hard assets with which to secure a loan.

Today, online small-business loans from alternative lenders account for about 2% of all small-business loans despite their ability to offer more tenable and accessible financing agreements for SMB owners. Growth, however, is a solid prediction for the industry: loans from the same providers are expected to comprise 16% of the total small business loan volume by 2020, according to a 2015 report by Morgan Stanley.

Consumers and businesses now have alternative financing options outside of traditional banking – moreover, these alternatives have gathered increasing mainstream relevance and investor confidence, moving beyond the high-risk/high speed niche to which they were originally confined.

Access to capital a key motivator

In a 2013 report, the Small Business Branch of Industry Canada noted:

“The competitiveness of the small business sector in particular and more generally the economy at large depend on an efficient allocation of financial resources and a healthy balance between capital demand and capital supply.”

For the small business owner, cash flow is often described as the “king” when it comes to strategic planning and long-term stability. Stable cash flow is required for inventory management, hiring, promotional needs, and maintenance of relationships with suppliers, landlords, and other key collaborative components that work together to build a successful business plan. Business lenders are catching up to their peers in the consumer alternative lending market when it comes to the flexibility, speed and affordability of the financial products they can offer. This mainstreaming effect allows more businesses to meet critical needs — and to expand or plan for the future — in ways that will not disrupt their existing cash flow.

Lenders respond to social businesses

The importance of such factors as online reviews, social media marketing presence, payments flexibility and e-commerce connectivity to small business success has become more highlighted in recent years. Your business is well served by maintaining its online image and engaging organically with your customer audience: so too have alternative lenders taken the initiative to embrace the value of digital and social information.

This is not simply a strategy for offering online portals for loan applications. Business owners should know that their digital presence is included in the advanced, qualitative part underwriting process that alternative lenders use to evaluate modern loan applications. When choosing an alternative lending option, consider the value of keeping a strong, searchable and supportive digital record of your business.

David Gens – Merchant Advance CapitalDavid Gens is the CEO and founder of Merchant Advance Capital, one of Canada’s leading online lenders on a mission to help small and medium-sized businesses grow. It leverages technology and data science to reduce risk and provide more control, lower fees and flexible repayment schedules. David was named one of Business in Vancouver’s Forty Under 40 in 2014 and BC Business’ 30 Under 30.

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