After an extended austerity period, there are now indications that America’s big banks are once again in the business of providing small business owners with the funds they need to realize their entrepreneurial ambitions. Here’s a look at some recent changes that occurred in the world of small business lending.
The state of post-recession small business lending
After the great recession of the late 2000s, most of the country’s major banks greatly reduced the number of small business loans they would issue per year. In addition to becoming considerably more risk averse post-recession, Karen Mills, the former head of the U.S. Small Business Administration noted that banks got out of the business of making small business loans because of the comparatively small ROI involved. However, with the economy now recovered from the hit it took in the recession, some of America’s biggest banks are reconsidering their lending habits.
A change in big banks’ thinking
In a recently published Entrepreneur article, Lisa Stevens, an executive vice president with Wells Fargo, revealed that her company is now very interested in issuing loans to qualified small business owners. She further explained that one in ten U.S. small business loans are now issued by Wells Fargo, and they only anticipate that number will increase in the near future. So why the about-face? Well, in addition to small businesses nationwide having better cash flow and less debt than they did in 2007, the small business lending market has gotten a lot more competitive in the last nine years.
The rise of the online lenders
For previous generations, the only way to get enough capital to start or expand a small business was getting a bank loan or securing funding from an independent investor. With the rise of the internet, entrepreneurs can now seek funding from a range of different online lenders. Companies like OnDeck, Kabbage and CAN Capital have enjoyed incredible success by offering small dollar loans to burgeoning entrepreneurs using a big data approach. Instead of just analyzing cash flow, credit score and assets, these online financiers use social media data and transaction volume to make their lending decisions. Seeing as OnDeck was recently evaluated at $1.5 billion, it’s no wonder that the big banks are interested in reentering what has turned out to be a very lucrative market. Whatever their motivation, the fact that banks are issuing more small business loans is good news for entrepreneurs.