10 Years After The Financial Crisis, SMBs Are Turning Away from Banks

2018 has brought much to celebrate. With the mainstream media fawning over the PyeongChang Winter Olympics, FIFA World Cup, Royal Wedding and Royal Baby, and endless political buzz, this eventful year has also brought another just as important but less covered milestone: the 10th anniversary of the 2008 financial crisis.

Ten years after the American economy took a severe downturn, economists and business owners alike are using this benchmark to analyze the impact the recession had on various aspects of the job market, housing market and finance industry. There has been an obvious loss of trust in banks as well as a loss of mobility by banks to loan money to businesses in need.

The Emergence of Alternative Funding

Extra working capital is necessary for economic growth. Before the 2008 recession but even more so after, small businesses had trouble finding outlets through which to receive extra cash flow. When banks became heavily regulated by the government with strict requirements on qualifying for a loan, the alternative funding industry emerged in response, serving the underserved market of small and medium business owners. That’s how America has always been with business, if one company can’t meet the current needs for consumers, another will.

The U.S. Small Business Administration reports that there are nearly 30 million small businesses in the United States, employing 47.8 percent of US workers. Many people think of a small business as a local cafe or family run company, but the SBA considers companies with as much as $35.5 million in sales and 1,500 employees to be “small businesses”, depending on the industry. Somehow this major market went overlooked for decades, until the alternative funding industry emerged to help.

Filling in the Bankless Gap

The impact of this relatively new source of financing has not gone unnoticed by business owners. Alternative funders are able to aid business owners in a way that banks cannot. Funders work one on one with merchants to understand their business and specific industry. By looking at the whole picture of how the company operates, funders are able to accept low credit scores as long as the business is in good health. This creates a financial opportunity for businesses that previously did not qualify for bank loans.

Funding is also short term, typically 2-15 months as opposed to bank and SBA loans that easily last 20 years, quite a long term burden. Many business owners know all to well that a 20 year loan might outlast their business. Because of the short term commitment, alternative funders are able to provide funding to low credit scores because a few months deal is much less risky than a few years.

A business will probably be in business in 5 months, but not necessarily 5 years. Businesses of all sizes also utilize the short term format as a source of bridge funding, sometimes to coast through a payroll gap while waiting on a client to pay or other times as a bridge until a bank loan kicks in, which, as mentioned earlier, can often take several months.

10 Years Later, The Evolution Continues

One of the most enticing attributes of the alternative funding industry is the timeliness allowed by the format in which the funds are provided. In a digital age, the ability to act quickly is everything. Businesses need to stay competitive by taking immediate action when an opportunity for growth arises, and funders meet this need by reviewing and approving applications for funding within a few hours and wiring the money to the account within a few days. Traditional banks just can’t compete with their long application process and months long waiting period.

Small business owners were hit the hardest when the recession caused free spending to halt. While the years following economic recovery were still rough times for running a business, a positive and necessary change arose from it. Businesses previously barred from growth by lack of extra capital for expansion finally have a solution. Big companies never had a problem meeting bank requirements with so much revenue flow and collateral. While all companies can utilize alternative funding, the unsecured and short term funding format of the industry allows small businesses to be accepted and overcome financial hurdles of running a business.

The finance industry has changed drastically in ten short years. Through a combination of digital advancements and economic changes, alternative lending has established itself as a long-term player in the competitive world of business financing. As the industry evolves and grows, more regulations are being put in place to protect both the merchants and the funders. Funding is still fairly new, but it’s clear that the industry operates in a timely and accessible way that banks simply cannot compete with.

Alex Shvarts is the CTO of FundKite, one of the fastest growing Fintech companies in New York that provides funding to small businesses across the U.S.


Add Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Digital Marketing
6 Tips to Expand Your Digital Marketing Team
jeffrey s. musser CEO of expeditors international
10 Things You Didn’t Know about Expeditors International CEO Jeffrey S. Musser
Fox News Anchor Bret Baier
How Bret Baier Achieved a Net Worth of $16 Million
rapper busta rhymes reading speech
How Busta Rhymes Achieved a Net Worth of $65 Million
Income
1 In 5 Americans Experience Income Volatility
Philip Morris International
Why Philip Morris nternational is a Solid Dividend Stock for the Next 20 Years
10 Benefits of Using Amex Platinum with Car Rentals
NextEra Energy Partners
Why NextEra Energy Partners Is a Dividend Investor’s Dream
Electronic Nose
What is an Electronic Nose and Do They Exist Yet?
Drone Technology: The Ups and Downs of a New Application
Flying Car Concept
How Close Are We to Flying Cars?
machine translation
How Close are We To Getting Machine Translation Perfected?
Ritz Carlton Ft. Lauderdale
10 Reasons to Stay at The Ritz-Carlton Fort Lauderdale
Del Marcos Hotel: A Mid-Century Modern Icon in Palm Springs
Why Uncle Jack’s Is One of NYC’s Finest Steakhouses
10 Reasons You Should Visit Socrates Sculpture Park in NY
1966 Ferrari 365 P
A Closer Look at the 1966 Ferrari 365 P Berlinetta Speciale Tre Posti 8971
1964 Ferrari 275 GTB-C Speciale
A Closer Look at the 1964 Ferrari 275 GTB-C Speciale
1961 Ferrari 250 GT LWB California Spider
A Closer Look at the $18.5 Million 1961 Ferrari 250 GT LWB California Spider
1954 Ferrari 375-Plus
A Closer Look at the $18.3 Million 1954 Ferrari 375-Plus
A Closer Look at the $4.6 Million Louis Moinet Meteoris
A Closer Look at the $4 Million Patek Philippe Platinum World Time
A Closer Look at the $3.3 Million Piaget Emperador Temple
A Closer Look at The Patek Philippe 1953 Heures Universelles Ref 2523