Often perception does not match reality. In the aftermath of the financial crisis, government rhetoric indicated that an emphasis was being placed on small business lending. The entire focus, and subsequent campaign regarding "Help Main Street not Wall Street" was nothing short of a hoax on "the street". Any small business owner or entrepreneur knows that very little was being done to provide them the working capital they needed to run their existing business or worse, start a new business. Data showcased this reality as small business loans declined by 27 percent from June 2008 to June 2013.
Recently, the tides have changed, as small business lending has begun to show some life. Big banks are once again beginning to push additional resources onto Main Street. Evidencing this, a number of large banks, including Bank of America, JP Morgan and Wells Fargo say they have increased small business lending by $17 billion since 2011. While these numbers also provide hope for many entrepreneurs, and small business owners, the "S" in Small to Mid Sized Businesses ("SMB's") continue to struggle for working capital, accounts receivable and start up financing at the major banks.
Recognizing a massive, multi-billon dollar market opportunity, smart entrepreneurs have spent the last five years launching new ways of providing capital to small and mid sized business and dramatically accelerating the convergence of technology and small business lending. We have seen numerous lending websites and platforms targeting small to mid sized business owners gain traction in the last several years - most of these innovate credit-based lending services with much faster underwriting and loan approval processes - like Prosper, Lending Club, Kabbage or OnDeck. These new services provide a viable and efficient alternative for small and mid sized businesses to borrow $10,000 to $5000,000 quickly and with limited business interruption. Literally, these business have rewritten the lending rules at the small business level. More recently, innovation has begun trickling down and providing new borrowing capacity for self-employed or "S" level enterprises and entrepreneurs -- the so called "very small" borrower.
Until the advent of "very small" business lending, these entrepreneurs were looking to the the following resources and platforms to obtain loans:
1. Family and friends
No one wants your business to succeed more than your loved ones or good friends, but you don't want to risk being in debt to them, and ultimately becoming a burden.
2. Credit Cards
Personal and business credit cards can work, but they can be costly, with interest rates exceeding 20 percent, and always carries the danger of hurting your credit score.
Trust is priceless, and you have to be willing to share your future successes...
Home equity is one of the quickest and easiest ways to obtain cash, but it can also get you in quick trouble if you find yourself under water.
So what happens now? Well first off, I personally don't know if small business lending in this country will ever return to its former glory. However, the industry has shown improvements, and if you're an entrepreneur and can get a bank loan, DO IT. If your needs are significant -- needing $10,000 or more then consider the new breed of credit-based lenders and take advantage of those services if you qualify.
If you can't, it is time to look at other options. When looking at other options, you should remember that every situation is different, every business idea is different, therefore every loan need will be different--and you have to find the option best suited for your needs. Carefully consider how much money you need and for how long you need it. This will impact where you obtain your funding.
For instance, pawn shops fit those who need a short-term loan and those with credit problems. Entrepreneurs and small business owners sometimes can't wait, they have business needs, they have employees they need to pay and pawning a high-end piece of jewelry or watch can be a great way to solve a short-term financial problem without affecting your credit. Furthermore, an asset-based loan like a pawn loan can be completed in a matter of hours, not weeks.
All options for loans have both positives and negatives, as an entrepreneur or small business owner you need to select the option that best aligns with both your long term and short term goals. Explore all possible options and don't ever let funding be a reason that a great idea doesn't come to life.