Looking ahead sometimes means looking back. Financial experts forecast new trends by taking into account the circumstances leading up to shifts in expectations. According to the NFIB's Small Business Optimism Index, small business growth is somewhat flat in this fourth quarter, with small businesses noting concerns about taxes and regulations as their most concerning problems of the day. Job creation and hiring are slow. And yet plans for capital spending are reportedly increased.
Nerdwallet recently reported that the forecast for borrowing to meet plans for capital spending is healthy, and that alternative options continue to drive the bar up for both traditional and alternative lending.
Alternative lending background
You might already know the history of online alternative lending's growth. In a nutshell, the financial crisis of 2008 led to banks cutting the availability of loans to small businesses. With an increasingly unsteady financial landscape, access to capital all but dried up. The application process took months (often still does), including gathering the necessary data, documenting and presenting business plans, showing stability and good faith that you could repay the loan. And after months, still no approvals. The situation was bleak.
Enter an alternative. A way to apply online with minimal information, to submit an application, and have an answer quickly. Speed and efficiency through algorithms, borrowing lesser amounts, and repaying in smaller increments more often changed the game. Alternative lenders were able to say yes when banks were saying no.
Technology changes the trajectory
Today, 80 percent of small business owners begin their search for a loan online, according to Biz2Credit experts. Just as we've become comfortable with other online transactions, from ordering inventory, to banking, to marketing and information management, searching for a loan and completing the transaction online is a commonplace activity. Trends continue to point toward online platforms for small business borrowing.
Borrowing framework may become more rigid and transparent
Calls have come for more transparency in an industry that is somewhat unregulated. Alternative lenders have expressed satisfaction with these expectations, trying to show good faith through the creation of the small business borrower's bill of rights, and by recommending borrowers to be selective and to do their research before signing a deal.
Small business administration, the Treasury Department, and the Consumer Financial Protection Bureau are all working with lawmakers to develop stricter regulations on borrowing and lending practices. Alternative lenders find it in their favor to work alongside these decision makers to help create meaningful dialogue. What this means is greater transparency for borrowers, understandable terms, and reasonable pricing.
By working proactively, alternative lenders can create their own industry standards. Ethical actions will help strengthen the industry and fuel growth.
Demand will grow in all lending sectors
Experts believe SBA loans will continue to be the most attractive way to borrow capital for small businesses despite the difficulty in getting them. Popularity is evident in the federal government's need to suspend the 7(a) loan guarantee program because it simply ran short on funds.
Because SBA loans are guaranteed by the government (hence, by taxpayers) it's important that lenders are involved with stringent due diligence. The amount of paperwork required for businesses applying for a loan is greater, the time in reviewing applications takes longer, approvals and delivery of funds happens in months, not days. And it will still be more difficult for small businesses with weak credit to secure a loan.
To help with efficiency is SBAOne, coming spring 2016. A fully automated application process launched by the SBA will dramatically cut the time and costs associated with applying for government-sponsored funds, and appears to mimic many of the characteristics of alternative online lending.
What's most promising from these noted trends is the continued availability of capital to small business. Growth without investment can be difficult, and the push to move optimism from flat to optimistic may come from small business borrowing.
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