Alternative lending options and banks are not rivals, and 2016 may prove to be a year of collaboration between the two financing options.
The myth of banks and alternative financing firms constantly being at odds with each other should truly be disproven in 2016. According to the Federal Deposit Insurance Corp., as reported in the Wall Street Journal, loans to large companies have increased 37 percent since 2008, while, during that same time period, banks of all sizes went from holding $711 billion in small business loans to $598 billion.
But small businesses still need loans, and as the likelihood of banks issuing small business loans has decreased, the market share of non-bank (alternative) lenders has increased from 10 to 26 percent. Both of these financing options have their strengths and weaknesses. Whereas banks tend to have longer running reputations and more visibility to consumers through multiple marketing and advertising channels, alternative lenders have the upper hand in speed and the ability to quickly and accurately assess the risk of a small business and then provide necessary growth capital.
The current financing environment has created a collaborative ecosystem in which small business owners can access credit through a wide spectrum of options. Traditional bank lenders are increasingly creating partnerships that mimic the business models of successful alternative lenders. There is also another subculture of banks that are funding alternative lending firms and in turn, funding the markets that generally get turned away from traditional banks; these banks use this relationship to gain knowledge about the alternative lending marketplace. These partners can now work together to develop the best risk assessment practices to help get more credit to more small businesses, which is the ultimate goal of lenders.
We have already seen this trend start late in 2015, with JPMorgan Chase & Co., the largest United States bank, partnering with On Deck Capital Inc., a leading alternative lending firm, to speed up the financing process for the firm’s 4 million small business customers. Jennifer Piepszak, JPMorgan’s head of business banking, stated, “We’re working with On Deck to build a new Chase lending product that will be launching in 2016 for small-dollar loans to our small-business clients.”
It is an unfair assessment to label banks and alternative lenders as rivals when they have complementary business practices, and more often than not, have a different customer base with different needs. Small business lending is projected to grow in 2016, and now is the time to consider adding an alternative financing option, like a capital advance from Wellen, to your small business’s financing mix. The influx of capital may help your small business match the rest of the small business market’s growth by funding new business ventures, marketing efforts, inventory expansion, and so on. We at Wellen look forward to continuing to help our customers fund their growth in 2016 and beyond.