New Year, Same Problem: Non-bank Lending Fills Credit Access Void for Small Business

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Beginning of 2015 data affirms alternative lending will remain key means of access to credit for small firms, says Liberty Capital Group CEO.

Liberty Capital Group

While we are seeing a decline in approvals by alternative lenders, that doesn't mean they are also down and out...as in the past, these lenders have played a key role in filling in the gap. - Adrian Dalsey, Liberty Capital Group

Lending index reports released this month by Biz2Credit show that things are looking upside-down for small business lending with small bank approvals declining and big bank approvals rising. While the prospect of increased access to credit from big banks sounds exciting, data shows they're more interested in investing those dollars into loan applications of $600,000 and above, leaving a large margin of applicants to continue their costly search.

While the reasons for post-recovery risk aversion has been covered extensively, it can be concluded that alternative lending will continue to play a big role.

"Small business lending is a risky...with high search [for the applicant and lender], transaction and processing costs it is understandable why large banks did whatever possible to avert risk during and in this recovery period," says Liberty Capital Group CEO Adrian Dalsey.

Now, with larger bank loan approvals up at a record post-recession high and small banks citing the same concerns as its larger siblings in the past, the question of who will fill in the void this time may bring with it the same old answers.

"While we are seeing a decline in approvals by alternative lenders, that doesn't mean they are also down and out...as in the past, these lenders have played a key role in filling in the gap," concluded Dalsey.

According to Laurence Kotlikoff, a finance professor at Boston University, says that, “Small Business Lending is a less profitable area for big banks--the risk is high, and calculating the borrower's financial condition takes time and effort.” The banks’ operating costs average about 6% of revenue, compared with 2% for online-only lenders. (Crain’s New York Business).

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Lauren Rockwell
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Liberty Capital Group Inc.
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