Digging up the archives led us to the revelation that business loan date back to over 4,000 years ago in Mesopotamia, this was when the payday loan was used for the first time. Later in 1754 BCE, the concept of the interest rate was introduced, and the Sumerian temples of that era were taken as the banks along with worship temples. Over time, multiple changes took place in the world of small business loans, from temples as a bank to official banks to credit and debit cards to alternative and online lending. This was a brief timeline of the financial lending institutions over time.
When you were looking for the lending institution in 2019, three platforms come to the mind: alternative lenders, banks, and government-administered loans by the Small Business Administration. Each lending institution has its highs and lows, some have more advantages as far as the interest rate is concerned and the other has an edge over in the terms of the loan repayment. After the literature review, one might conclude that more small business owners are inclined towards alternative lenders, but according to some research, it is also evident that many people still turn towards banks to get the external funding to manage the cash flow.
Let us look at multiple resources to analyze the shift and trends in the small business loan industry.
In the first half of 2019, American Reporter reported a survey conducted by one of the leading institutions: Balboa Capital and following were the results:
- 60% of the participants acquire an unsecured business loan from alternative lenders (other than banks).
- 24% of the participants apply for unsecured from the banks.
- 9% of the participants headed towards the credit unions. The remaining 7% didn’t share the nature of their lender.
These numbers show a promising future for the alternative lending industry. Easy application, relaxed qualification criteria, and instant funding are some of the many reasons why small business owners head towards alternative lenders. But do these numbers say that banks are not relevant?
A report of the next quarter of 2019 shows a significant increase in the approval rate of the small business loan by the banks. As compared to the previous years, the approval rate of the small business loan application rose by 50%.
What do these numbers signify?
Lenders are familiar with the rise in small businesses, so they are opening up many opportunities to respond to the financial needs of those businesses. An article shared by Forbes also states the main reason behind this significant increase. In June of 2019, some news regarding a major cut in the interest rate on small business loans. Some reporters even claimed this to be the best time to apply for a business loan. Hence, small business owners with a stellar financial position apply for business loans and got lenders’ approval.
In addition to the alternative lenders and banks, small business administration is going strong as well. As these loans are administered by the government so the Congress had allocated thirty million dollars that is to be distributed among the small business owners who need extra cash flow to keep their business running. This administration has been striving to meet the financial needs of financially struggling businesses since 1953. It was founded and established by Congress and work under the supervision and guidelines of the Small Business Act. Since then, SBA has assisting, protecting, and counseling small businesses.
Furthermore, the report showed that by the end of June, the SBA loan has offered more than 20 million dollars, and the approval rate is only going up. In addition to this, according to the research conducted by McKinsey & Co, small business administrating is acting as the helping hand of the small businesses run by minorities such as the Black African community. SBA programs such as:
- SBA 7(a) Loans
- SBA Community Advantage Loans
- SBA Microloan Program
- SBA 8(a) Development Program
As these loans are especially fashioned for the minorities plus, with the fast approval rate this is an economical option.
Where do alternative lenders stand in this scenario?
Now that the Federal Reserve is offering low-interest rates and more borrowers are inclined towards banks and SBA loans. Where does this leave the alternative lenders? The report showed a decline in the approval rates of small business loans by alternative lenders. The approval rate of June came out to be 56.8%, previously it was 57.1%. So, it is safe to say that the low-interest rate of the business loans by the banks and SBA has taken its toll on the alternative lending industry. On the other hand, the credit unions are reported to have an approval rate of 39.9%.
All things considered, all the lending industries are still standing, but as of now, banks have the highest approval rate.
Lastly, if you are an entrepreneur looking for a small business loan, you must study and explore all three of these lending institutions. If you need instant access to the funds and don’t mind the high-interest rate, online alternative lending will suit you more. On the other hand, if you can wait for at least two to three months, then enjoy the relaxed repayments and low-interest rate of the banks. Remember, banks and SBA prefer business owners with a stellar financial record.
So, if the bank and SBA have rejected your application, head over to the official site of Merchant Advisors, and apply for the small business loan. For more information regarding the recent trends and news on the lending industry and small business loans, you can follow us on Facebook and Twitter (@Onlinecheck). If you have any questions, feel free to call us on our toll-free number at (833) 827-4412; we will help you every step of the way.