Small companies have a big impact on the U.S. economy. Business Insider says small companies make up 99 percent of all private sector businesses and they employ 60 percent of all the workers in the country.
These companies are particularly vulnerable to cash flow issues, so fluctuations in the small business lending market are vitally important to the economy. What small business lending trends are affecting American entrepreneurs through 2021?
Small Business Lending Trends to Watch
Business start-up and growth loans are helping pandemic-stricken companies experience a rebirth this fall. Whether it’s a traditional loan from a banking institution or a 401(k) self-fund, companies are seeking ways to fuel their future. There are a number of small business lending trends that are likely to continue through 2021. They include:
- Fintech (financial tech) companies have changed the landscape of lending forever. Online small business lending has increased rapidly, particularly over the last couple of years. Business Insider expects an increase from $14.7 billion to $67.4 billion by 2021. These young upstarts of the traditional lending world have disrupted how money flows to small companies. This growth has helped more entrepreneurs get their start and created more competition to eventually threaten mid-market and enterprise organizations.
- Low interest rates are expected to continue next year. The federal funds rate was reduced three times last year and in 2020 the feds cut it to near zero. Given that the market has a long way to go to recover its pre-pandemic market health, it’s unlikely that rates will go up next year.
- Artificial intelligence and automation have increased the speed of small business lending. Loans that used to take weeks to arrive can now go from approval to deposit in a day or two. This modernization of lending practices can help small companies move more quickly in a rapidly changing marketplace, something that large businesses naturally can do because they have more cash flow.
Lenders are changing how they look at small business credit scores. Full-spectrum lending is a non-traditional way of offering credit. It seeks a more robust picture of the overall credit behavior of an individual entrepreneur or a growing small company. It can look at everything from the payment of monthly bills to the use of online borrowing, inventory turnover, and overall profitability as a measure of creditworthiness. This new approach seeks both to eliminate risk by increasing the accuracy of information gathering while increasing the volume of borrowers. This is a technique used most frequently by fintech disrupters; note that they also use AI to gather the data they need to make these decisions.
American Banker suggests that some of these small business lending changes were the result of COVID-19. The publication stated, “Obviously, this pandemic has been an incredibly strong motivator for banks to figure out how to do things in the digital space.”
The new small business lending landscape seeks to improve the customer relationship by creating easy-to-use online tools. Small companies can benefit tremendously from the speed and ease of these interactions while also taking advantage of the latest in small business lending trends.
Benetrends has been at the forefront of small business lending trends with 401(k) rollover funding. In as little as 10 business days, you can have business funding that is tax-deferred and penalty-free and unlike traditional funding, isn’t reliant on a credit score. Schedule a consultation with our team to talk about 401(k) funding or other types of financing to help your company thrive.