Tag Archive | "borrowing"

The Future of Small Business Borrowing

One of the interesting business trends to have witnessed going back a decade is how small business owners have chosen a loan source. But the future trend should be even more interesting, reported FoxBusiness.

Looking back, there have been primarily three sources of loan funds for growing small businesses:

  1. Large, multi-state banks
  2. Community banks, locally owned and managed
  3. Credit unions, also locally determined

In a recent online poll we asked small business owners about their borrowing preference. One-sixth of our respondents chose “large bank,” which is down from a decade ago. Following the 2008 financial crisis large banks stopped lending to small business while they struggled with their own regulatory stress test. They’re lending to small businesses again, but are now in catch-up mode.

One-eighth of our sample selected “credit union,” which is higher than the past. Much to the chagrin of banks, credit unions have expanded their customer profiles to include small businesses, aren’t taxed like banks, and aren’t subject to community reinvestment requirements. I predict the credit union loan option will grow for small businesses going forward.

More than two-thirds of our small business audience told us they borrow from community banks. The Independent Community Bankers of America (ICBA) report they make almost 6 of 10 small business loans nationally, so our folks are a little more active with these lenders. Perhaps, since I’ve long espoused the natural symbiosis between Main Street businesses and community banks, I’ve influenced my polling audience to move this needle beyond the national average.

The big news of our poll is that crowdfunding popped up on the lending radar for the first time. The number was only 3%, but this credit source is very new.

Right now crowdfunding loans fit small businesses that aren’t bankable for one reason or another, but are strong enough to handle the associated higher interest rates. I predict over the next decade crowdfunding will claim a larger piece of the small business loan pie for three reasons:

  1. Crowdfunding rates will become more competitive
  2. It won’t have banking regulatory challenges
  3. The virtual, online aspect of crowdfunding will appeal to the next generation of entrepreneurs

Recently I attended a convention of bankers and asked several of them what they knew about crowdfunding. Most had not heard the term, only a couple of those who had heard of crowdfunding knew how it worked and none understood the future implications to their industry.

Bankers, call your office.

Write this on a rock …

Small business borrowing will be a lot different in 2025.

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U.S. Small Business Borrowing Rises: PayNet

Via Reuters

U.S. small businesses boosted borrowing in March, signaling a renewal of confidence in growth prospects after an unusually harsh winter crimped investment.

The Thomson Reuters/PayNet Small Business Lending Index, which measures the volume of financing to small companies, rose to 115 in March from 111.6 in February, PayNet said on Wednesday.

It was the first monthly gain since December, and marked an 18 percent increase from a year earlier.

The year-on-year increase, the biggest in more than two years, reflects more optimism among small business owners and “signals some continued strengthening” for the U.S. economy overall, PayNet founder Bill Phelan said.

After stumbling badly in the first quarter, the U.S. economy appears set for a rebound, with economists predicting that growth this quarter will come in at an annualized rate of 3 percent or more.

Federal Reserve policymakers are set to wrap up a two-day meeting on Wednesday with a decision to continue reducing the U.S. central bank’s bond-buying stimulus at a measured pace, reflecting their expectations that despite increasing momentum the economy still needs plenty of support.

A separate index released by PayNet showed loan delinquencies only slightly above recent record lows. Delinquencies of 31-to-180 days, PayNet’s broadest measure of late loan payments, ticked up to 1.48 percent of all loans made.

The index hit a high of 4.73 percent in August 2009. The record low was 1.44 percent last October.

PayNet collects real-time loan information such as originations and delinquencies from more than 250 leading U.S. lenders.

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