There has been this notion floating around that traditional business lending is dying and alternative lenders are taking over. Banks are only profitable if they loan out $250,000 or more. All the space underneath that mark, small businesses are hard pressed to be approved. That’s where alternative lenders have been flourishing. Truth is, banks and alternative lenders are beginning to work together based upon the mutual belief that all small businesses have the right to access capital. Just not all on the same terms.
There are some great advantages to this evolution in the world of small business lending. For banks, the cost of capital is significantly lower, which is a big advantage for their customers. Banks also have a much lower cost of acquisition, since they already have a large customer base that they serve through checking and banking accounts. Also, and probably most importantly, people trust banks. They trust banks way more than they trust alternative lending sources. The perception of walking into a bank and sitting down face to face with your banker is just obviously much more comforting than the online and phone conversations you will have with most alternative lenders.
However, banks are slow with their processes. Alternative lenders can get loans approved within 24 hours and they can get their clients funded as early as 48 hours. Banks tend to take weeks, or even months to get their clients funded. Alternate lenders also excel over banks in the speed and accuracy of assessing the risk of a small business, as well as their ability to create a better, more personal user experience. They have specialists that can weigh in on a business’s financial status and help guide a business owner in choosing the right loan product that fits their needs.
More and more both traditional and alternate lenders are realizing what is happening and working diligently to develop partnerships that can help to better benefit the businesses that they serve. Banks are trying to better understand the tools that alternative lenders use for evaluating credit risk and creating a better user experience. Mainly, because it is becoming a threat to their own business model. They are being forced to adapt because of the growing success of alternative lending.
It’s wrong to think of alternative lenders as rivals to banks. Especially now, when they are currently developing new ways to work together. Especially since they have always served customers with different needs. The fact is that there are benefits to banks and traditional lenders as well as there being benefits to using alternative lenders. Both options do certain things better than the other, which sets them apart entirely.
Moving forward with this evolution, there will be boundaries set up between both sides to ensure nobody is poaching the other’s clients. Depending on the client’s individual needs it will be fairly obvious if a bank is a better fit for them or if it’s a job for alternative lenders. This will prevent potential friction, and keep these newly forming relationships on friendly and collaborative terms. Entirely focused on the business of funding those in need of working capital.
Working With Sprout
Sprout is an online marketplace where businesses come to compare and save on small business loans. You go to www.SproutLending.com and simply fill out a profile or call us at 800-865-6057. Based on that information you provided, Sprout suggests the best matches depending on the amount and purpose of the business loan you are seeking. Last year, Sprout and it’s staff was responsible for over $100 million in loan approvals.