Now quickly approaching the end of the first quarter of 2012 it is safe to report back on the business loans trends that really did take hold and changed the way we all did business in 2011. Many times, the buzz words in our industry do not really reflect what is going in the market place but the following really does represent the business loan trends of the past year.
Since the credit crunch began over four years ago the trend of big banks saying no to business loans has been at the heart of the industry so small business lenders have had to turn to alternative capital sources to continue their operations and try and turn a profit in a severely depressed economy. There were a few alternative lending sources which came to the forefront by 2011 and they seem to be going string early in this first quarter.
Alternative Business Loans Making News
Chief among these hot new sources for business loans are Credit Unions, Community Development Financial Institutions, Micro Lenders and Accounts Receivable Financers. The methods for determining growth in new loans from these types of sources are shown in the increase percentage rate in approved loan applications compared to the total number of applications submitted. The trend shows that these alternative lenders are approving more loans while traditional business lending banks are declining.
Credit Union Business Loan
Remember, a credit union is not a bank, it is a member owned institution. Therefore, the rules governing the issuance of loans differs from traditional banks in many ways. In 2011 the requirements for reserves Credit Unions could have tied up in business loans was relaxed which gave them room to aggressively enter the business loan market. In fact, collectively, they are lobbying the Government to nearly double their 12.5 percent cap on business lending in the near future.
Since credit unions are member owned they tend to be thought of as more “local” and have a vested interest in the communities where their members live. The rise in their loan approval rates are combination of several factors but competitive rates, access to more of their reserves and an understanding of local small businesses are the main reasons.
CDFI Business Loan
You may have also heard of a CDFI, or Community Development Financial Instituion, which is simply and financing entity giving business loans under the guise of community development. Special legislation back in 1994 gave rise to these institutions which have access to lending fund backed the U.S. Treasury.
Loans which do not qualify for traditional bank lending can often find help through a CDFI program which has the freedom to get a bit more creative with their funding programs. Again, these mainly focus on local business to business products because the Community Development funds are ideally suited to enhance local markets in combination with other community building efforts.
The term micro lenders refers to lenders who make small dollar amount business loans to entrepreneurial type businesses commonly in depressed areas. Not only do many inner city revitalization zone qualify for certain types of micro loans from non-traditional lending sources, but we often see web sites for individuals to make micro loans to needy people looking to start businesses in third world countries. It is a chance for individuals with no credit or bad credit histories to get a chance at starting a venture with very little investment.
Accounts Receivable Business Loans
These types of loans have long been know as factoring. Simply put, a lender will buy a portion of a companies account receivables at a discounted rate in exchange for money in the present. When the accounts are collected the balance owed is paid to the lender.
In factoring, a business owners can expect higher rates because some transactions are based on high risk so the lender is justified in the charges. These are to be avoided unless in very unique circumstances.
With the exception of credit union business loans, the other alternatives are not in the best interest of the borrower. Unless these loans are extremely short term, it is best to look for other options. If you are looking for competitive business loans in a nontraditional package, then fill in the form on the right and let Seed Capital do a free application to determine your needs.