Traditionally, small business owners have relied on banks to give them small business loans and lines of credit to manage operational costs and invest in growth.
However, in recent years, the finance industry has evolved and gone in new directions; there are now many options open to small business owners that are looking for working capital.
Here are a few considerations to keep in mind when deciding whether a bank or online lender is the best source for your small business loan:
Banks might not lend the money you need
Since the financial crisis of 2008, banks have been slow to resume lending to small businesses and lending hasn't reached the levels achieved before the crash. This is partly due to regulatory obligations - many big banks are required to keep more capital on their books and they are reducing the amount they lend to small businesses as a result.
Some banks are also reluctant to lend the smaller amounts of money that many small businesses prefer to borrow - so as a result, there is a funding gap in the market; many business owners want a size of loan that big banks are not willing to make.
Technology is changing small business finance
The past few years have also seen significant growth in the fintech industry - with new technologies being developed to make financial services more efficient.
By using these new technologies, online lenders are becoming more efficient in evaluating borrowers and issuing small business loans with automated processes. For example, instead of looking at credit scores like a traditional bank, online lenders can use different types of data such as social media activity, logistics information and online sales totals to decide whether a business is credit-worthy.
Fintech has helped online lenders reduce costs and offer loans to a broader pool of start-ups and small businesses that might not have qualified for a loan under the traditional standards of bank lending.
Bank paperwork vs online convenience
The traditional process for getting a small business loan involves going to the bank, meeting with a loan officer and filling out paperwork. Online lenders offer a more streamlined, convenient process to help small business owners get quick decisions about their loan application, with no paperwork required.
Small business owners don’t need to feel limited to the standards and expectations of the bank lending process. Today, more than ever, small business owners have options to get the working capital that they need to help their businesses grow.
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