Alternative Lenders Filling a Gap for Commercial Loans?

imagesWith Credit for Businesses tight, inevitably Nonbank Lenders will come to fill a Gap.  The WSJ recently reported that if your needs are for $1 million or less, going through a bank can be a painful process.  Banks require Credit reports, financial and tax returns, business plans, etc.

Commercial loans under $1 million have been stagnant at banks as evidenced by the Bank call reports submitted to the FDIC.

But new opportunistic lenders are coming to provide a boost to a difficult market.  These lenders are different for several reasons:

  1. New forms of Underwriting: They use Social media to provide real time input into how customers perceive the financial applicant.
  2. No Regulatory Capital issues:  These new non bank lenders are unencumbered with new bank capital rules which can make it prohibitively expensive to lend to non rated companies.
  3. Access to Credit – according to Biz2Credit, an online loan broker for small businesses, big banks approved 18% of loan applications by its customers in December, while small banks approved 49%..
  4. More Active Monitoring of Credit:  Short-term lenders such as Swift Capital and OnDeck typically structure their loans to be repaid in months, not years. To reduce risk, payments are collected daily or weekly

According to Marc Glazer of Business Financial Services, new nonbank lenders—including OnDeck Capital Inc., Kabbage Inc. and CAN Capital Inc.—lent about $3 billion collectively last year, double the 2012 total. Compare that to the value of outstanding commercial loans under $1 million at federally insured banks—a proxy for small business at $284.5 billion in third quarter of 2013 and we are still scratching the surface.

The big BUT here of course is to be prepared for some Usury Interest Rates - Interest rates on such loans can run in excess of 50%, on an annualized basis, much higher than on conventional bank loans.  It wont be cheap, but then it may beat the alternative.

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