After the initial shock of the 2008 financial crisis had passed, small business owners found themselves on the wrong side of business lending. It became incredibly difficult for small businesses to find any lender willing to work with them. It simply made more sense for banks to work with larger companies and bigger accounts than with small businesses that cost more for them to fund.
Since then, alternative lending has increased rapidly. The options for small (<$5 million in revenue) and mid-sized ($5-$100 million) businesses continue to grow with each passing year. The results from the Q2 Private Capital Access Index from Dun & Bradstreet and Pepperdine Graziadio Business School support this.
According to the study, 34 percent of respondents attempted to raise financing in the last quarter – up from 29 percent in Q1.On the other hand, the attempts to secure a traditional loan from a bank have declined since Q1. Just 41 percent of businesses said they sought a bank loan, compared to 49 percent in the previous quarter.
In fact, the results show that bank loan success rates have actually decreased for both small and mid-sized businesses. Small businesses reported 32 percent success rates for banks loans, down from 41 percent the previous quarter. Mid-sized businesses reported 89 percent success rates, down from 95 percent the previous quarter.
“As the dust has settled on the 2008 financial crisis and the lending regulations are becoming looser, it’s not surprising that we’re seeing an increase in the options and access to alternative financing for small businesses,” shared Nalanda Matia, Sr. Director Economics Solutions at Dun & Bradstreet.
Even though access to alternative types of funding have increased, small and mid-sized businesses still need to use caution. It is easy to get pulled into a lending option that does not fit your business goals and needs or even choose a lender that does not have a strong reputation. The key is to choose a lender that specializes in working with your business type and industry.
“Banks have generally retreated from debt capitalization, so cheaper, faster alternative sources of credit may be appealing to small and medium sized businesses,” said Dr. Craig R. Everett, director of the Pepperdine Private Capital Markets Project.
“However, small businesses need to do their due diligence such as looking at lender backgrounds, past history with other borrowers and fees and penalties. The devil is in the details.”
Where to Find Alternative Merchant Loans
There are many reasons why businesses are increasingly turning to alternative lenders and Merchant Loans. They not only offer a quick and painless setup process, but you can also have cash in your business’ account in as little as 24 hours. You get to skip the long, tedious application process of the bank loan and the long wait times for funding.
With First American Merchant, your business also benefits from working with a team of experts that have years of experiencing in offering alternative funding options. Even if your small business or medium-sized business is categorized as “high risk” with a traditional lender, you can easily secure working capital with First American Merchant.