According to a recent Pepperdine Private Capital Index Survey, the odds of a small business actually receiving a bank loan from traditional lenders today is about 50-50 . As the economy continues to improve and many small businesses look to expand, it is little surprise than many organizations are seeking new means of access to capital.
Alternative lenders have exploded in popularity in recent months, taking advantage of their own limited regulation when compared to the hefty new rules governing big banks. According to Bill Phelan, president of PayNet, a small business credit ratings company, non-bank financial providers have grown 100 percent since last year.
While alternative lenders still only lend a fraction of the total amount of traditional lenders, with several billion changing hands instead of hundreds of billions, they are continually gaining ground in the small business, consumer and mortgage lending markets.
The internet has allowed alternative lenders new means of satisfying consumer credit demands. Because many consumers, who may have solid incomes, suffered negative effects on their credit scores during the recent recession, online alternative lenders are growing in popularity against traditional lenders.Success with these lenders also allow borrowers the opportunity to rebuild their credit rating, and eventually return to a brick-and-mortar institution.
Alternative lenders typically offer much higher rates than their larger, more established counterparts, but are able to offer a much faster turnaround and greater customer service and personalization. CNN Money also noted that because alternative lenders financing amounts are regularly much smaller than those offered by traditional banks and span reduced terms, it can lead to organizations entering an endless cycle of loans.
"Small business owners need to carefully evaluate lending options and understand that not all lenders are created equal," small business adviser Mike Periu told the source. "It's up to the borrower to do their homework."
Lenders also need to exercise caution as they seek to meet the growing needs of both small businesses and homeowners. It is important to have the most current credit application software in order to manage risk effectively and protect both parties.