The business lending world has seen a significant shift in recent years, with more and more small businesses turning to alternative lenders and institutional investors for funding. According to a recent Forbes article, small business loan approval rates from traditional lenders remain sluggish while alternative and institutional lenders are gaining popularity.
How The Source Of Small Business Loans Is Shifting
The current rising interest rate environment has brought about a significant shift in the lending landscape, with banks now valuing deposits more than making new loans. This trend is driven by several factors, including the stricter lending requirements imposed by traditional banks.
Small businesses, especially those in their early stages or with less-than-perfect credit, often find it challenging to secure funding from traditional banks due to these stringent requirements. However, alternative lenders and institutional investors have emerged as viable options, offering more flexibility and a willingness to work with businesses that may not meet the strict criteria of traditional banks.
Additionally, alternative lenders and institutional investors leverage technology to streamline the lending process. Online platforms have made it easier for businesses to apply for loans and receive funding quickly, sometimes within days rather than weeks or months.
One significant advantage of these alternative and institutional lenders is the wider range of financing options they provide. Unlike traditional banks, which typically offer only term loans and lines of credit, alternative lenders offer innovative financing solutions such as invoice financing, merchant cash advances, and revenue-based loans.
As the lending landscape continues to evolve in response to the rising interest rate environment, small businesses can explore these alternative sources of funding to meet their capital needs. It’s important for entrepreneurs to understand the changing dynamics and explore all available options to secure the financing necessary for growth and success.