Banks have long placed limitations on their lending to small and medium-sized businesses for a variety of reasons: business strategy focused on larger loans, staffing levels ill-suited to administer a high volume of small-sized loans, process inefficiency, regulatory compliance; and an overall industry mindset that tends to deprioritize SMB lending.
While many regional and community banks prioritize small business lending, businesses owners have often found it difficult to secure the funding efficiently from big banks. In fact, the Federal Reserve assesses that almost 50% of small businesses in the U.S. do not receive all or part of the financing they seek. Further, some estimates of the global funding gap for SMBs exceed $5 trillion.
This funding gap hinders small business expansion, especially when one considers the huge role of small businesses in the overall U.S. economy. Indeed, small businesses account for an estimated 40% of the $29 trillion gross domestic product (GDP) in the U.S. Thus, the gap represents a major obstacle to the country’s economic growth.
Fortunately, small businesses lending is undergoing a technological transformation that is helping to expand access to capital while significantly improving the digital experience in the process. Advances in technology, data analytics, combined with embedded financing, and new, non-bank sources of credit have set the stage for an unprecedented shift. Access to capital is expanding, while lender exposure to risk has improved dramatically. Biz2Credit recently partnered with the Boston Consulting Group (BCG) on a white paper to examine the revolution in small business finance.
Funding challenges confront small business
To confront today’s economic challenges and support growth, small businesses need funding. Research has found that they are not receiving funding at the levels they need, and that they are frustrated by the slow approval process. The speed of funding is especially critical to SMBs, who generally lack the organization and human resources to anticipate needs into the more distant future. They are often willing to accept slightly higher rates in return for the swift provision of funding. Meanwhile, many small businesses have found that lenders are unwilling to extend credit at acceptable terms.
FULL ARTICLE:
