We have heard it typically listed as the main obstacle to growth by small business owners; lack of access to capital. This fragmented market consists mainly of banks that will work with borrowers who have a Small Business Administration guarantee, or private equity that comes with a higher price tag attached to it. It is hard to believe that the segment of the economy that accounts for so much job creation and GDP growth is all but ignored by lenders.
The caveat of course is the high rate of business failure, hence the inability to pay back debt obligations. Stepping into the lending ring is Funding Circle, a UK-based small business lender. It is setting its sights on the small business U.S. market, hoping to become the leading lender to what it sees as an underserved market. According to Bernardo Martinez, U.S. managing director at Funding Circle, “Typically banks haven’t focused on the segment. It’s an unmet need from small businesses standpoints.”
One must admit that the program offered by Funding Circle is very appealing. According to their website, “We offer the best parts of an SBA loan, but we make it faster and more flexible. Our SBA loan alternative was designed for small businesses who don’t want to go through the hassle of applying for an SBA loan or who simply don’t meet the strict qualifying criteria. With low interest rates, SBA loans can be an attractive product for businesses. But they also come with strict requirements and a cumbersome application process. We offer a faster and easier option — apply online in 10 minutes and get a decision in as little as 24 hours. We offer:
- Access to funding in as few as 10 days
- Fixed monthly payments
- Transparent rates and a simple, one-time origination fee
- Best in class service with dedicated loan specialists
Welcome to the real world of lending small business owners. With rates starting as low as 4.99 percent in amounts from $25,000 to $500,000, it could be a game changer. Anything involving the government, even the SBA, can be time consuming and frustrating. Add to that wait time the decision process by the guaranteed lender. If this pans out well, the entire capital structure for small business will change for the better. The climate is changing as the confidence mounts on both sides. Small business has never been more optimistic.
“This is the longest streak of small business optimism in history, evidence that tax cuts and regulatory rollbacks are paying off for the economy as a whole,” said NFIB President and CEO Juanita D. Duggan. The perfect storm is coming together, beginning on the demand side. Businesses are profitable and growing. As such, money is being made available in light of this optimism, at prices that are lower than ever before. On the supply side, lenders like Funding Circle have brought the loan process into the 21st century, and larger banks and lending institutions are looking to diversify their debt portfolios. All this fuels economic growth and employment.
As with the stock market, it usually lures in every last buyer before it decides to take a plunge. One wonders if this could be happening in the small business lending environment. The stock market is in its third largest period of growth in history, the economy has been surging for years now and interest rates still remain low. However, many economists espouse that there are signs that we are entering the late stage of the economic cycle and if things worsen due to trade wars or other unforeseen reasons, there are some concerns small business owners will have a hard time paying back their loans. This is the cycle of life in the small business financing world.
Editor’s note: Be very careful of the payback terms with ANY business loan not made through a bank. In one instance, I was offer a short term loan at an ostensible rate of about 15%. But after examining the payback process (it required immediate payment of a monthly installment), I found that the ACTUAL effective interest rate was about 45%. Lots of scammers out there so beware!