More Small Business Owners Turning to Online Lenders

Home » Small Business » Small Business News » More Small Business Owners Turning to Online Lenders

More Small Business Owners Turning to Online Lenders

When businesses are in need of a loan, where do they turn? Previously many may have said their local bank or another major institution. Although that’s still often the case, the number of entrepreneurs looking to online lenders for funding continues to grow.

A new study by Federal Reserve Banks found that the percentage of small business owners applying to online lenders is on the rise. Of those surveyed, 32% had applied for loans, lines of credit, or other funding from online lenders in 2018. By comparison, only 24% and 19% turned to online lenders in the 2017 and 2016 editions of the study respectively. Despite the gains, online lenders remained the third most popular option for small business owners in need of loans as big banks led the way with 49% followed by small banks with 44%.

Noting this increase, the Fed then asked entrepreneurs why they choose to apply to the institutions that they did. Among those who applied to online lenders, 63% cited the speed of the decision and the funding as their top factor. In contrast, 58% of those who applied to big banks and 65% who applied to small banks said that their existing relationships with the lender had the biggest influence on their choice. The second place answer — “chance of being funded” —  was uniform across the board, although it played a bigger role for those who applied to online lenders than banks. Finally the third largest factor varied by the type of institution with 29% of big bank applicants saying the cost or interest rate was a factor, 30% of small bank applicants citing speed of decision, and 45% of online applicants noting that lack of collateral requirements influenced their choice.

It’s really no surprise that those who applied to online lenders were more likely to note that their chance of being funded was a reason why they shied away from banks as the study found that online lenders approved more applications than others. In fact this year’s report found online lenders had an 82% approval rate for loans, lines of credit, and cash advances in 2018. That’s up seven points from 2017 and 13 points from 2016. That said approvals were also up among all size banks — albeit it by more modest margins. Last year approvals at small banks rose from 68% to 71% while big banks improved approvals from 56% to 58%.

Given the growing number of online small business lending options, it only makes sense that more entrepreneurs would be turning to these lenders. Moreover it’s clear that the speed of funding that many of these platforms offer coupled with higher approval rates are making them more popular among entrepreneurs in need of working capital. While these online institutions may not be able to compete with banks in terms of long-term relationships just yet, their ubiquity means it won’t be much longer before that becomes a factor as well. In all, it seems that this trend will only continue.


Also published on Medium.

Comments

With the rise of online lending, this means more opportunity for small business owners to avail loans and provides alternative to banks loans which can be more strict with approvals.

This maybe because online lenders are moreflexible than banks, not to mention easy loan approvals.

Online lenders is a great alternative for small business loans and good opportunity for those who can’t comply with big bank’s requirements.

Comments are closed.

Author

Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

Other Articles by Jonathan Dyer

What is a 401(k) Loan and is it a Good Idea?

For many employees, their 401(k) plan is their main means of saving for retirement and it may also represent the bulk of their net worth. Given this reality, it's no wonder that some individuals might look at their retirement savings and wish that they could utilize some of those funds...

Sales of Existing Homes Fall to Near 10-Year Low

During these interesting times, are you in the market for a house? If not, you certainly aren't alone. As CNN Business reports (and according to data from the National Association of Realtors), sales of existing homes dropped by 17.8% in April compared to the previous month. Similarly sales were down...

FinTech Numerated Announces Automated PPP Loan Forgiveness

Among the many ways that the coronavirus pandemic has changed life in America and around the world is that it's made FinTech more relevant than ever before. From contactless payments becoming a growing preference to digital banking proving essential, these innovations have been thrust into the spotlight. Similarly, while select...