During the recent recession, many traditional financing options for small businesses dried up. Even when the economy started to rebound, banks increased loans to large businesses while scaling back financing for small businesses.
Small businesses owners have struggled to secure financing, and as a result, hopeful borrowers are considering other options besides traditional banking institutions.
Small Business Lending at a Glance
Though government agencies generally do not make loans directly to business owners, the federal government provides a guaranty to banks and lenders for money lent to small businesses. Popular small business lending outlets include community and national banks, credit unions, state and local government agencies and local non-profits, alternative lenders such as cash advance or payday lenders, and non-bank lenders.
What is a Non-Bank Lender?
A non-bank lender is a financial institution that extends credit, or loans. Typically, non-bank lenders provide services to businesses, not individuals, and they do not hold depository accounts.
Points to Consider When Borrowing from Non-Bank Lenders
If you are looking for alternative small business financing there are important factors to consider, no matter who your lender is.
As with any lending arrangement, a loan through a non-bank provider will have advantages and disadvantages:
- Non-bank lenders often specialize in certain industries or business models, such as high-growth startups or franchises.
- Non-bank lenders tend to facilitate loans that may seem risky to other lenders, including banks.
- Compared to other lenders, non-bank lenders tend to offer flexibility in terms of how they evaluate collateral and cash flow.
- Non-bank lenders tend to assume; risky loans. Interest rates and loan conditions may be higher to help absorb some of that risk.
- Because non-bank lenders are not held to the same regulatory requirements as banks, they have more flexibility in their operations. Borrowers should consider that, as a result that there may not be looser standards over disbursement timelines and loan terms.
- Non-bank lenders may not be as well-known as their big-bank counterparts. To ensure that you are dealing with a reputable lender, be sure to thoroughly research the business.
Today, the odds of a small business actually receiving a bank loan are about 50-50, according to a recent survey by Pepperdine Private Capital Access Index and Dun & Bradstreet Credibility Corp. With quicker turnarounds and more personalization, our team can help you secure the commercial real estate loan you need to grow your business at 5-7% interest rates through the SBA 504 program. Pre-qualify now!
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