Obtaining small business loans has been very challenging for many small business owners across the country. Although business lending has increased or remained steady for larger companies (since the onset of the Great Recession), smaller underserved communities still lack simplified access to capital. According to studies conducted by the Federal Deposit Insurance Commission (FDIC) and the National Federation of Independent Business (NFIB), at least 90% of small businesses depend on traditional banks for credit.
Traditional Banks Just Can’t Cut It
According to Karen Mills, (former Administrator for the U.S. Small Business Administration), the SBA has attempted to cater to the needs of smaller underserved businesses by issuing $30 billion in SBA loan guarantees (each year since 2009) to banks that issue the SBA guaranteed small business loans. Mills insists that the SBA loans have had a positive impact amongst the small business community however they only make a small portion of the entire market.
According to Mills, the amount of capital available to small businesses has increased, not the number of individual loans actually awarded to smaller businesses that need less than $150,000. Mill’s further states that (although the toughest part of the recession has passed) banks are still very risk adverse when lending to smaller businesses because it costs them more money to make the loan. Many of these smaller business owners don’t meet the banks credit criteria for approval and end up having to shop around to get approved for a small business loan (or they find it nearly impossible to get approved). This scenario has enabled alternative lenders such as OnDeck Capital to make a dent in the small business lending game.
Alternative Lenders are Catering to That Niche
Companies like OnDeck Capital use a specialized software system to analyze a small business’ bank statements, deposits, and other financial data to determine eligibility for a small business loan. Therefore lessening the focus on the personal credit history of the small business owner to determine eligibility. Most traditional banks weigh small business loan eligibility on the personal credit history of the business owner (and whether or not they have collateral), whereas as alternative lenders like OnDeck (and Can Capital) focus on the financial viability of the business to determine approval. This gives more small businesses (that need less than $150,000, don’t qualify for an SBA loan or traditional small business loan) the chance to obtain the capital they need to take their business to the next level.
Alternative lenders like OnDeck and Can Capital have changed the small business lending game by catering to a niche that has been shunned and overlooked by the traditional banking industry for a very long time. If you’re a small business owner with a profitable business (in need of additional capital to grow), but you have less than admirable personal credit, checking out an alternative lender like OnDeck or Can Capital could put an end to your search business capital woes.