The time of the traditional bank loan has come and gone. Alternative small business lending resources provide business owners with easily accessible capital without drowning them in a mountain of paperwork and making them wait months for a loan decision.
Former member of President Obama’s Cabinet and head of the Small Business Administration, Karen G. Mills, delivered a TEDx Talk discussing the current state of small business in the U.S.Now a Senior Fellow at the Harvard Business School, Mills noted in her report on the state of small business lending, “There is a gap in access to credit for small business owners, and particularly in loans of about $50,000, which is about the level that most small businesses want.”
Why does this gap exist? According to Mills, it’s because small business lending has not changed in about 50 years; banks rely on expensive underwriting processes and massive amounts of paperwork. The majority of small business owners still utilize the long and drawn-out process of traditional bank lending and do not have the quick access to capital that is necessary for a business to thrive.
The solution? Online and alternative lending options. Mills commented on the ease of applying online for a loan from an investment firm and stated, “You can let them electronically access your bank records, credit account, and using big data and algorithms, they can give you an answer on your loan within hours or even minutes; the money can be in your account in days instead of months.” The internet has sped up practically everything we do, and Mills says it is time for small business lending to catch up in order to close the existing gap in access to credit.
Small Businesses Still Not Fully On Board with Online Lending
With 54% of the jobs in the U.S. coming from businesses with fewer than 500 employees, small businesses are the backbone of the American economy. How these companies acquire the necessary capital is crucial to their success, so some uncertainty and apprehension towards changing tactics is completely normal.
New research by Manta shows that alternative lending is still not performing as well as it could because business owners do not fully understand or trust the application process. 30% of respondents stated they were unsure of the risks, and 20% said they did not understand the technology associated with the alternative sources. However, interest among business owners is on the rise. The research points to main reasons business owners use alternative lending options:
- Lack of qualifying for a traditional bank loan was the number one reason respondents to Manta’s research reported using alternative lending sources.
- Others reported they online needed a small, short-term loan.
- Some small business owners preferred the speed and convenience associated with the alternative source.
- Lastly, respondents noted that the alternative source of capital could provide them with ongoing access to a credit line.
Karen Mills stated “transformation is coming,” and more small businesses will begin to utilize new and exciting forms of lending to fund their endeavors.
Become Part of the Transformation: Try a Capital Advance
Our goal at Wellen is to put necessary capital in the hands of small business owners quickly and efficiently so they can fund their business’s growth. Traditional bank lending has not adapted to the fast paced world we live in today, and no person enjoys dealing with mountains of paperwork and waiting months for approval. Consider how Wellen can give your small business the lift it needs thrive in this new economy.
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