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Home Business

Small and Mid-Sized Businesses are increasingly Accessing Alternative Funding

by Jason Robin
August 17, 2021
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Ever since the Great Recession of 2008, the traditional lenders such as banks and other financial institutions have heightened their risk perception for small and mid-sized businesses. It is almost as if these businesses are solely to blame for the crisis, which was mainly due to the faulty lending and recovery practices of the major lenders. As a result, the source of credit for the small and mid-sized businesses dried up to a point that it began to negatively impact the growth of these businesses. That was when alternative lending companies stepped in to fill the gap although they have been around for quite some time. These lenders came with the clear objective of solving the borrowers’ problem and work around it.  

Easy access to unsecured funds 

Most small and mid-sized businesses have funding requirements that are proportionate to their size. It’s not that a business with revenues of $1 million would seek $10 million of business funding. The companies providing such alternative modes of credit are as professional as any other financial institution and they will reject such applications. 

The quantum of funding that the small and mid-sized businesses seek are small enough to be covered by unsecured funds. Unlike the big traditional lenders, the alternative lenders do not ask for collateral on fixed assets to secure the debt. They assess the risk of lending to a borrower on a different set of parameters. 

Borrower’s credit history doesn’t count 

Another major hurdle that small and mid-sized businesses face when seeking business capital loans from major lenders is approvals based on past credit history. Most of these borrowers don’t have a picture perfect credit history and hence their applications get rejected. 

However, when they apply to alternative lenders for small US business funding, on most occasions their credit history is not taken into account while approving the loans. That is because these lenders mainly consider the viability and profitability of the borrower’s business and whether it is good enough to repay the loan with interest on time. 

Capital expenditure funding 

Small and mid-sized businesses generally grow quite steadily but some of them are eager to grow faster than the others. Many of these companies go on to become huge corporations and there is no shortage of examples in this regard. Unfortunately, the traditional lenders in their obsession to be risk-averse refuse to see even this history of growth in which they had played a significant part. 

Going by the business climate and the risk perceptions about small and mid-sized businesses among traditional lenders, they won’t get any funding from such sources. However, they will get alternative business funding for their growth and expansion related capital expenditure. Depending on the quantum of the loan, it may or may not be unsecured. 

The small and mid-sized businesses account for over 44% of all economic activity and 40% of the GDP of the United States worth over $6 trillion. Denying credit to them on the pretext of higher risk perception and overlooking a market of this size is not a wise idea and there would always be other players to fill the gap. The small and mid-sized businesses now are increasingly getting their funding from alternative funding companies and before long it would become their primary source of credit. 

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Jason Robin

Jason Robin

Jason is a professional blogger and marketer, who frequently writes about custom packaging, technologies, news and health to help businesses understand and adapt new ways to reach and inspire their target audience.

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