Small businesses are considered the backbone of the US economy and more than ninety percent of US employees work for these companies. There are many types of financing available for businesses of every size and programs like SBA Loans play a big role in keeping smaller companies going and growing for the long term.
The role of big banks in both supporting small business and the Small Business Administration loan programs is an important one which is growing every year. Banks and other lending institutions can become preferred lenders and extend these types of loans to small businesses. Traditionally, smaller and more local banks are more likely to invest in the local economy by working with small businesses, with larger banks focusing on corporate clients. Because the SBA guarantees part of the loans granted through their programs, lenders can take on less risk when working with small businesses and more big banks are taking advantage of this.
SBA loans are typically high dollar amounts ranging in the hundreds of thousands to millions, so they do not typically fall under the category of microlending, but the two do work together. When smaller companies need funding, but not as much as the SBA programs offer or when they are denied for those programs, they usually turn to microlenders and alternative lending options. This frees up some of the congestion around applying for loans through the SBA and banks, as well as supports small businesses during growth periods.
The SBA loan programs are designed for small businesses which have been in business for five years or longer, this leaves out many businesses just starting out and creates a niche for lenders. Microloans are gaining in popularity for startups and established businesses when they cannot go through the SBA.
Alternative lenders are filling in any gaps left by traditional lenders and SBA programs such as offering fewer requirements for loans, more approved uses for funds and shorter terms. This makes alternative lending more attractive for startups and businesses of all sizes than going through more traditional methods. SBA loan programs and traditional bank loans are notorious for how long it takes to fill out the paperwork and get approved, this makes alternative lenders a better option for those who need funding in a matter of weeks instead of months.
When it comes to supporting small businesses and the role that they play in the economy and society, SBA loans are the main way to fuel growth. Traditional lenders of all sizes are getting on the preferred lists to be able to offer these loans to small businesses and alternative lenders are filling in any gaps in the market.