Small businesses are still frustrated by banks’ tight lending policies more than three years after the Great Recession ended. They are now turning to a new crop of alternative lenders that are upending banks’ conservative standards and automating loan approvals. Instead of stringently relying on collateral and credit scores, these cash-flow lenders are using software that reviews online sales, banking transactions and comments on social-media sites, among hundreds of other criteria, to make loan decisions within minutes instead of weeks or months.
Big banks approved 14.8% of small-business loan requests in October, down from about 46% before the economic downturn
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Businesses typically must have sufficient collateral, sterling credit scores and strong cash flow to get loans from large banks, tough criteria to meet in the post-recession economy. Many banks find it’s not cost-efficient to even review modest-size loans. Approval from small banks is somewhat easier, but only for businesses that qualify for Small Business Administration guarantees. And loan limits on credit cards have been slashed.
There are alternatives. Businesses that don’t have enough collateral to get bank loans but sell to other businesses have long turned to factoring companies.
Cash-flow lenders, which have sprung up the past few years, are funding an even wider pool of very small businesses, including dentists or plumbers that may not accept credit cards. About 65% of loans this year to businesses with one to 10 employees are unconventional – including factoring, merchant cash advances and cash-flow lending – up from about 25% two years ago
There are other alternative lenders which include Connected Capital Finance and it’s host of preferred lenders. We have the ability to review loan requests within minutes. After formal approval of the Loans, the loan can be funded within a two to three business days and paid back in six to 12 months, with payments deducted daily from a small business’ bank accounts.
He has obtained funds recently to hire more workers, have more stations and ovens.
3. Co-owner of a bridal shop in Virginia was turned down by about a dozen banks for a roughly $175,000 loan he needed for advertising and new product lines. Banks, he says, focused on his lack of collateral, ignoring his unique business strategy of selling larger-size bridal gowns. The store, which has been open for close to 2 years and is on track to double revenue this year received a loan that they are using to buy new inventory.