Small business lending improved during the past 12 months, which is good news for entrepreneurs and the economy overall. Startups and growing companies create the lion’s share of the new jobs in the private sector, and growth of small firms help make the economy stronger. Several trends emerged in 2012.
SBA lending volume increased to its second highest level in history. The agency backed $30 billion in loans nationwide. Big banks and smaller, regional banks increased their activity in SBA lending.
Use of Technology in Small Business Lending
Throughout 2012, increasing numbers of entrepreneurs applied for business loans through Biz2Credit and other online platforms specializing in small business finance. Technology eliminates the need to walk into a bank or other lender and fill out paperwork during regular business hours. Entrepreneurs can now apply for funding late at night or on weekends.
Meanwhile, banks and other lenders get pre-qualified leads at no cost, and the whole funding process becomes faster and more efficient. Further, small banks are able to make loans to small businesses outside their local area. Borrowers and lenders both benefit from the use of technology.
“Crowdsourcing” became a fundraising phenomenon during 2012. Young, tech-savvy entrepreneurs used this form of capital raising from friends and acquaintances through social media. It proved effective for artists, filmmakers and other creative types, non-profits, and startup businesses requiring smaller sums of money. However, companies looking for more than $50,000 likely should go a more traditional route for the funding they need.
The Rise of Alternative Lenders
Although large banks increased the percentage of small business loans they approved this year, they still typically grant less than one out of five applications on average. Credit unions were a reliable source of small business funding during the first half of the year before slowing down. Meanwhile, merchant cash advance companies, accounts receivable financers, factors, and micro lenders all have increased their lending significantly. They offer flexible, increasingly affordable terms, and most importantly, quick decision-making.
During the Presidential Election, Democrats and Republicans repeatedly focused on small business growth. As President Obama begins his second term, small business owners are examining the impact of Obamacare regulations and the potential of tax increases for people who earn greater than $250,000 annually.
Additionally, the “Fiscal Cliff” has caused uncertainty in the credit markets.
Despite these concerns, there are numerous signs that the economy is improving, and lenders appear increasingly willing to provide capital to small businesses in 2013.
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