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Getting outside funding is no easy feat for any type of business. But when it comes to small businesses, things get even more complicated due to the wide range of funding sources available and the wild variety of how small businesses operate. However, there are some trends that are common across small business lending – and here are the top forecasts for how the market will go for the next few months.
An Upward Market – Finally!
Lending is essential for the growth and prosperity of small businesses. Most of them cite financial uncertainty as the biggest obstacle, and roughly 50% of them don’t make it past the five-year mark. It does not take much to start a small business – 64% of them start with up to $10,000, while 75% are self-funded. Family and friends are also a big support and responsible for 6% of funding for small businesses, while banks account for 16%. Even though bank loans for small businesses were hard to get following the fall that the economy took after the fall of Lehman Brothers and the subsequent recession, the trend seems to be going upwards lately.
One of the biggest trends we saw in 2018 is the return of big banks in the lending game. They are happy to grant more and more applications for small business loans, and the number seems to be slowly but steadily growing. The fact that the Federal Reserve moved over the past year quite a few times to increase the interest levels has made small business lending more appealing for big banks. Even though the interest increase has not been that great, it shows a trend and a vote of confidence in the ability of small businesses to repay – and a grand opportunity for banks to make some profit. The return of big banks also signals more security and stability in small business lending.
Alternative Lenders and SBA Complement Each Other in Boosting Small Businesses
Beyond big banks, there are many more players in the game willing to lend. Alternative lending services providers like Fundbox are gaining increasing momentum. They beat loans from banks offering what they cannot: speed of credit approval and transparency over the process. While an application for a bank loan might take weeks or months to process, only to be rejected, alternative lenders usually provide extremely fast credit decisions. They are also becoming more and more popular among small business owners due to the increased control the borrower has over the funds. Usually bank or SBA loans come with strict terms – and flexibility is pivotal for small businesses.
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However, it seems that the SBA still has a crucial role to play – and carries a lot of authority and prestige in the lending world. SBA lending has helped boost small businesses in 2017 and it is likely to continue doing so in 2018 and 2019, thanks to a wide array of loan programs. Through its 7(a) program in particular, the SBA distributed more than $25 billion across over 62,000 loans in 2017. Due to the very competitive process involved, SBA loans far from dominate the market, as many small businesses struggle to meet the eligibility criteria. However, those that do see a significant advantage that cannot be underestimated.
It remains to be seen whether these trends will continue well into 2019 – but it surely looks like small business lending is on the rise.