At The Commercial Finance Group, you’ll notice that we’re always a group of forward-thinking people who are bent on planning for and figuring out the future, especially in the context of helping support and finance your small business operation. We offer custom, dynamic small business loans that work with your situation so that you get the exact amount of capital that your business needs and exactly when you need it.
We know that unexpected things happen with your business, and usually, your cash flow is affected as a result. That’s why our Los Angeles asset-based lending services get you the best business loans to meet your current situation as well as where your business will be in a matter of days, weeks, months, and years. Regardless of your small business situation, there’s probably a financing solution that’s right for you!
While we’re always concerned about the future wellbeing of your company, it’s also important to take some time and consider what the future of small business lending and small business loans will change and evolve into from where it currently is today. In today’s post, we’re going to share some insight on these matters from the perspective of a small business lending company and how we can improve our services to better support you and your small business. Continue reading below to learn a few things about the future of small business lending.
The Current Problem
While many small business owners are more than ready and capable of making their own monthly payments, they tend to seek out smaller amounts than the bank is willing to lend. So in addition to less profit, small business lending is also commonly associated with increased risk, partially due to similar underwriting methods for small and large businesses alike – making it difficult for small businesses to qualify for these kinds of loans.
In fact, this challenge is so significant that an act was created to help promote more widespread lending, known as the Community Reinvestment Act. While many small businesses and local nonprofit organizations have benefited from CRA funding, the current demand far exceeds the available capital.
More Access to Meet Demand
So if the future of lending is going to improve, then it must include more access to nontraditional loan methods. To help out a wider range of small business owners (with great ideas that should be funded!), it is particularly important that these new lending products are inclusive. This means that underwriting these small business loans, to a degree, will include ‘commonly available assets’ like social media activity, strategy, and specific character endorsements that create more opportunity for a more diverse group of borrowers.
While current lending models that heavily rely on things like credit scores and financial collateral are tried and true, they’re not necessarily the end-all for small business loans. The current lending model, if anything, excludes too many successful or would-be successful business owners. The fact of the matter is that small business growth is extremely critical to job creation as well as creating desirable communities to live and flourish in. Bigger and greater opportunities will only come from a desire to continually discover and innovate new and unique ways to lend, in addition to the proven and established methods that The Commercial Finance Group employs.
More Affordable Capital
So if the future of lending is going to be better than it is now, then lending should also include cheaper capital or at least cheaper access to capital. Things like high-interest rates and less-than-favorable valuations tend to result in less competitive pricing and lower wages for current employees.
It might seem idealistic, but lower rates should be possible to put into action by rethinking how risk is evaluated and compensated for. When it comes to cost, the source of the capital is usually the biggest factor – which explains why alternative funding methods like crowdfunding are shaking up the lending industry.
The People’s Input
In crowdfunding, the crowd can offer cheaper capital due to a few simple principles. By distributing the total amount of required funds across hundreds if not even thousands of lenders, each individual share of the overall loan becomes smaller and smaller. So, small commitments of capital from each lender results in less overall risk to the lenders.
The point here is that the odds of connecting with a group of people who are interested in lending are overall much higher than obtaining the full amount of the loan from one single source. Crowdfunding might not always work, but when it does, it tends to work well for small business owners who have a great idea but relatively limited business experience.
Fine Tuning The Speed of Capital
To improve the future of lending, capital should be provided faster in some cases, and slower in others. The industry has already seen the testing of lending speed capabilities through online lending platforms that are able to approve significant loan sizes in a matter of hours – something that would take a traditional bank weeks, if not months.
The fastest capital options, however, are still expensive and exclusive to businesses who can prove significant amounts of revenue. When we consider alternative underwriting methods, it is important to take scalability into consideration. Scalability is important for borrowers and lending organizations alike because it creates access to larger pools of funds in which one can lend from. These kind of loan programs require the operating capacity to make thousands of small loans per year, whereas larger pending partners tend to consider deal sizes in the tens of millions. In other words, a larger number of small loans is more beneficial in this sense than a few large loans.
But Don’t Forget About Qualified Borrowers
Despite fine tuning the speed of capital to make it so that there are many small loans instead of a few massive loans, there still needs to be slower capital because there will always be gaps. By this, we mean that there will always be qualified borrowers who fall outside the approval process for the latest in loan products. For example, a lender who takes several months to understand the potential of a given business that can’t be translated on paper would likely warrant a slow speed of capital. This is a case where many in-person meetings, site visits, and extra effort spent on making a deal are necessary.
Invest In Your Future With Us!
The future is extremely difficult to accurately predict, but it is possible to prepare for certain outcomes. The Commercial Finance Group has countless years of experience working with small businesses in many different industries, and so we know how to tailor our loans for small business so that they work with your situation. For the best working capital solutions for your business, get in touch with The Commercial Finance Group today!
