If you listened to political pundits on both sides of the aisle, you might be pessimistic regarding the future of our nation. With decent job growth and a flood of outside capital from different regions of the country, the American economy doesn’t look too bad compared to other economies around the globe. An innovative and entrepreneurial country by nature, the US has endured previous downturns in the economy and bounced back. Of course, there are troubling signs in the economy- ask any small business owner and they will explain the challenges of growing their businesses, specifically, securing growth capital to increase inventory or purchase more equipment. However, recent innovations in the financing sector have given businesses a new option to turn to. Let me explain.
No one can dismiss the importance of community banks. From loans to home mortgages, community banks have been vital in the economic development of communities from coast to coast. Unfortunately, since the financial crisis in 2009, community banks have had to deal with a flood of increased regulations and costs to ensure another crisis would be avoided. If you follow data from the Federal Deposit Insurance Corporation (FDIC), then you would see a steady decline of small community banks about every two months over the past 2 years. Yes, some of this trend is due to consolidation, however, all too many community banks have found it too costly to operate branches in multiple locations, notably in rural areas. I am sure you would agree that this is a dangerous turn of events.
Who is ultimately being hurt by all this? Small businesses. According to the SBA, SMBs account for two of every three new jobs in the United States, and represent over 28 million businesses nationwide. With the operations of many small businesses being adversely affected by the financial crisis, many of them have had an especially difficult time recovering. In today’s economy, some financial institutions, especially community banks have become risk-averse due to increased scrutiny placed on them by diligent bank examiners.
Given the obstacles small businesses have had the last several years in obtaining working capital to grow their businesses, a wide variety of alternative financing options have emerged to relieve this shortage. Online lending platforms like Lending Club or Funding Circle are prime among these. Taking the best features of the banking sector, and combining them with innovative technologies, these online lenders can rapidly and efficiently analyze the data available to them, and in turn make informed lending decisions. This allows for access to capital to be a mere click away for many small businesses that had recently been cut out of the credit markets.
It is important that business owners are aware of these new resources available to them. Understanding that the world is different is key, but learning about new and innovative ways online lenders are changing the finance space will arm businesses with the tools they need. Although the small business world may look different, the developing wealth of options available to them should allow for greater growth opportunities. With these, America’s economy can regain its full potential and contribute to community development again.
Sergio Rodriguera, Jr. is the Chief Strategy Officer at The Credit Junction
