The Rise of Hybrid Finance

Ever since the Global Financial Crisis of 2008, banks have been hesitant to provide business loans to anyone. It seems as though the banks tightened their lending requirements the moment that most businesses needed them, leaving people with nowhere to turn. The businesses that survived this era of turmoil are now starting to get back on their feet, thanks in part to alternative lending opportunities like the ones here at SnapCap.

So who's to blame for the lack of bank lending? Is it the economy? Is it the industry or the timing? Is it the lack of strong applicants? There is no concrete answer.

The Financial Crisis

Although the 2008 financial crisis largely affected the housing market –especially sub-prime mortgage holders- it also affected businesses and the economy as a whole. There is a direct relationship between wealth, consumption and investment, so when consumers lost their wealth, they stopped making purchases and cashed out on any remaining investments. Businesses had to downgrade or close their doors for good, and also fire employees and cancel planned investments to preserve as much cash as possible.

The Federal Reserve Bank of New York conducted a Small Business Borrower Poll that revealed some interesting statistics about bank lending. 544 companies in the state of New York were polled about their experiences with the lending system, and the vast majority of them said they were, in fact, able to get some kind of loan for their business. The problem was that only 13% of them got all of the money they asked for. Most of the applicants in the survey had fewer than 10 employees in their company and less than $5 million in annual sales. For the banks, that just wasn't enough to constitute substantial loans.

One reason for limited lending was because most businesses were applying for new lines of credit, which are more risky for a bank to take on. As frustrating as it may seem, it takes credit to get credit. To complicate things even more, a business’s creditworthiness is largely determined by their future profits.

A Recovering Economy

Although President Obama announced the return to a stable market in 2010, the economy is still recovering. Small businesses and new start-ups still struggle to secure necessary loans, but new methods of financing have since emerged, like alternative business loans. With a normal bank, you are primarily judged on your credit and collateral, not the performance of your business. This is where the alternatives come in.

Alternative lenders like SnapCap assess your business performance and your overall ability to pay back a loan. They focus more on short term solutions, instead of long term debt. Your payments may be a bit higher because of this, but your approval is almost guaranteed.

Stop stressing about the lack of available business loans from traditional banks and don’t be afraid to pursue other your opportunities. When you need a helping hand, SnapCap is here to help!

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