The turning of the calendar often serves as time for small business owners to benchmark overall performance and assess their prospects for moving forward in the new year.
In many ways, 2014 was a year of change in small business lending. Big banks re-emerged in the marketplace. However, their focus remains on larger amounts--loans of $250,000 or more--required by larger sized "small" businesses, rather than startups or mom-and-pop shops. Institutional lenders filled the void on marketplace lending platforms and took market share from other non-bank, "alternative lenders." The institutional lenders include credit funds, insurance companies, family funds, and other yield-hungry, non-bank financial institutions, which are filling loan requests at a much greater percentage than banks are.
With continuously dropping gas prices, slow but steady growth in the overall economy, and low interest rates, small business owners searching for capital in 2015 should have brighter prospects than at any time in the past half decade. Lending approval rates at big banks are up nearly 20 percent compared to a year ago, and the institutional players are gaining in the marketplace, according to my company's monthly Biz2Credit Small Business Lending Index. Meanwhile, high interest alternative lenders, are beginning to slip, as competition grows in the marketplace.
Signs are pointing towards 2015 as a year of growth for entrepreneurs. Here are three of my small business financing predictions for the New Year:
1. Substantial growth of institutional lenders in the small business lending marketplace.
The financial health of small businesses has improved over last 12 months, creating a demand for more reasonably-priced, longer term loans, which institutional lenders are equipped and willing to provide. Look for marketplace lending to grow substantially in 2015.
Institutional lenders involved in marketplace lending have emerged over the last year as one of the go-to sources for credit-worthy small business owners seeking lengthier loans, which typically come at an attractive rates as low as 8-12 percent. The financing deals they are offering are much more cost-efficient than those of alternative lenders, that specialize in short-term loans and charge 30-40 percent interest rates at times.
2. Immigration reform will impact small business finance.
In 2014, President Obama pushed for immigration reform that will effectively protect millions of undocumented immigrants living in the U.S. from the threat of deportation. Their newfound status will enable budding entrepreneurs, who may have worked and gained experience via the underground economy for years, the opportunity now to start their own businesses.
According to a recent study by the SBA, immigrants have higher business ownership and formation rates than non-immigrants. Now that undocumented immigrants can emerge from the shadows, many of them will start their own companies and will need to apply for funding to grow their enterprises in industries ranging from landscaping services to innovative IT companies.
3. Integration of mobile devices in small business lending.
Advancements in technology is one of the biggest driving innovations in the small business lending marketplace. The latest research I have seen indicated that growing numbers of small business owners between the ages of 30-40 rely on their tablets and cell phones to conduct business. It's not just people in their 20s. What are they doing via their mobile platforms? Applying for funding. Additionally, many immigrants entrepreneur have skipped the desktop and laptop phase altogether, as they grew up accustomed to using their versatile mobile devices for any of their business needs.
While many of the large financial institutions have not yet made the leap to go mobile, I predict that many more of them will make this leap in the coming year. Technology helps streamline the loan application process, thus benefitting borrowers and lenders. The financial institutions that respond quickly to this sea change will get a leg up on the competition. Just a few years ago, small business owners learned they could comparison shop and apply for loans online. The next step is to do it via smart phones.