The entrepreneurial journey has never been a bed of roses and prospective business owners must be ready to navigate a complex maze before the idea becomes a reality. Coming up with a business idea is the simple part, raising enough money to implement the idea and turn it into a tangible entity is the hard part.
Nonetheless, a wave of change is sweeping across the financial services industry and small business owners can expect to find it much easier to obtain business loans in the near term. This article explores some of the emerging trends that could make it easier for entrepreneurs to obtain loans in the financial landscape.
1. The SBA has enough money to go round
The Small Business Association (SBA) loans should be the first port of call for entrepreneurs and business owners. The loan caters to a wide array of funding needs, the loan term extends into multiple years and interest rate is reasonable in relation to loans by private lenders. If you have excellent credit and are willing to jump through all the hopes of a huge pile of paperwork, you shouldn’t have much trouble securing a business loan.
The first trend that your must understand is that the SBA has enough money to go around for the funding of qualifying businesses. The SBA reportedly approved $23.6 billion in business funding in 2015. In the current year, the 7(a) funding cap stands at $26.5 billion.
The second important trend to understand about the SBA loans is that one of the chief factors that could potentially affect your ability to access SBA loans with ease is the fact that the U.S. Federal Reserve is intent on raising interest rates this year. Hence, you can expect the interest rate of SBA loans to increase in the next couple of years.
2. More entrepreneurs will fund their businesses with 401(K) nest eggs
The entrepreneurial landscape has been recording some massive paradigm shifts in the last couple of years. In 2015, the 2015 Kaufmann Index showed that one quarter of new entrepreneurs were baby boomers .One of the biggest changes happening in the small business environment is that baby boomers are taking big risks to become business owners.
The more interesting fact is that baby boomers are accessing their 401(K) savings tax free in order to set up businesses instead of taking loans to start the business. The Rollover as Business Startup (ROBS) program provides an easier source of funding for people nearing retirement. If you have a 401(K) plan and you have a solid business idea, you might want to join other daring entrepreneurs to go out of your comfort zone and put your retirement savings to work for you.
3. Online lending marketplace will develop more products for small businesses
An alternative lending industry has sprung up to meet the needs of potential borrowers that might have been rejected or underserved by traditional financial institutions. Alternative lenders include online lenders, peer-to-peer lenders, and merchant cash advances among others. The online lending industry has seen massive growth in the last couple of years and the trend is not likely to slow down until the end of the decade.
However, an important trend that a small business owner must understand before borrowing money from the online lending market place is that alternative lenders are largely unregulated. Regulations are still sparse and spotty for the general fintech industry and some unscrupulous lenders can fleece unsuspecting borrowers with different kind of rates and fees.
You should make sure that you understand the loan terms before you sign the dotted line when applying for business loans with alternative lenders. You should also consider combining a loan from an online lender with a traditional lender in order to reduce your loan burden.
4. Banks will have more reasons to give out small business loans
Banks are have had a swell time in the lending industry because the demand for business loans used to be more than the supply for business loans. Hence, banks could afford to be picky about businesses that they can give business loans. For instance, banks will generally not give you a business loans unless you have impeccable credit and you can show at least two-years worth of financial activity in your business.
However, an interesting trend emerging out of the financial landscape is that banks are gradually losing their monopoly in the business loan environment. The advent of the modern FinTech industry has opened up funding opportunities to businesses that the banks didn’t want to serve before now. Interestingly, many of the prime borrowers of the banks are also gravitating towards the Fintech industry.
Fintech industry offers a speedy, convenient, and streamlined process of obtaining business loans. Hence, banks are losing customers to nimbler competitors who can complete the loan process within a couple of days instead of the lengthy process that banks force entrepreneurs to undergo. Now, the banks are being forced to offer a wide range of finance products in order to stem the growing competition from the FinTech industry.