In the past, when small businesses needed capital to grow, founders would head into the neighborhood bank, shake a broker’s hand, and walk out with cash. But in the aftermath of the 2007–2008 financial meltdown, traditional financial institutions have offered small businesses fewer and fewer dollars. Whereas the nation’s 10 largest banks funded small businesses to the tune of $72.5 billion in 2004, The Wall Street Journal reports, they only forked over $44.7 billion in 2014—a decrease of 38 percent.
Suffice it to say, it’s very difficult for small businesses to secure loans these days. In November 2016, large banks approved 23.7 percent of the small-business loan applications that came their way. Similarly, smaller banks—of which there are fewer and fewer, thanks to industry-wide consolidation—only approved 48.8 percent of the applications they saw.
As banks have tightened their purse strings, they tend to prefer lending large sums of money to big corporations. Not only are these loans considered less risky, banks stand to make more money from them.
In the instances when banks do approve small-business loans, they generally prefer to lend to companies that have bulletproof financials and fantastic credit scores. Unfortunately, not every small business owner can meet those criteria. To begin with, cash is often tight depending on seasonality and how long a business has been running. What’s more, according to a recent report, 30 percent of U.S. adults have subprime credit scores. Which raises the question: If you’re a growing small business that isn’t blessed with a near-perfect credit score, how are you supposed to secure a loan?
Good news: Recognizing a major need in the market, a number of new alternative non-bank lenders have emerged over the last several years to help small-business owners get the money they need to take their companies to the next level. These lenders are more than willing to sign off on small-business loans even when founders have bad credit—so long as they are able to demonstrate the ability to generate revenue consistently and have been open for at least one year.
In addition to the fact that they are willing to fund small businesses with bad credit, non-bank lenders provide small-business owners with a number of benefits, including:
- A fast application and approval process. Whereas banks require small-business loan applicants to submit mountains of paperwork, non-bank lenders have streamlined the application process considerably. You should be able to fill out an application in 15 minutes or less, because non-bank lenders only require you to turn over basic business information. Once you’re approved, money can be sent to your bank in as soon as one business day.
- No collateral requirements. Non-bank lenders offer unsecured business loans. While many other lenders require borrowers to put up collateral (e.g., property or equipment) to secure a business loan, non-bank lenders do not. So in the event you’re unable to repay your loan, you won’t have to worry about losing your home.
- Flexibility. When a bank decides to fund a small business, it’s expected that the loan will be put to use in a very specific way. Loans from non-bank lenders, on the other hand, require no such stipulations. You can invest the money any way you see fit. Use it to cover payroll, renovate your office space, open a new location, or however else you want.
- A chance to rebuild your credit. Repay your loan installments on time and watch your business credit score improve. In the future, should you need to borrow money again, you may benefit from lower interest rates.
If you’re a small business owner who needs an outside injection of capital, having a subprime credit score isn’t the end of the world. Partner with the right non-bank lender and you’ll find the money you need to regain control over your company’s finances. With a loan in hand, you can direct your focus on serving your customers better and otherwise growing your business. To learn more about how your business can secure a loan from a non-bank lender, check this out.