Fake News Meets Small Business Financing: What Banks Aren’t Telling You
When it comes to politics, fake news is, ironically, in the news quite a bit these days. However, a false tale that is flying well below the radar — yet has the potential to impact the lives of millions of people in cities and communities across the country — is much less sensational, but by no means less substantial. It’s a creative yarn spun by none other than good ol’ conventional banks.
photo/ Gerd Altmann via pixabay
Here’s the back story: when the Great Recession erupted in 2007 and sent shockwaves through the global economy — some of which continue to reverberate today — banks en masse and virtually overnight dramatically dialed back small business lending. When questioned and criticized about this by everyone from lawmakers to business leaders, banks said the move was motivated by a sense of (don’t laugh) “prudence,” and designed to reduce risk and keep both shareholders and customers safe.
However, here we are more than a decade after the Great Recession rocked the planet — and as we head into a ninth straight year of GDP growth — and yet banks haven’t come close to restoring their pre-2007 small business lending profile. And what’s more, they have no intention of doing so, despite various marketing and public relations programs that promise to “support small businesses.” Those kinds of slogans look good on posters, but apparently as far as banks are concerned, they make bad policy.
What’s the deal here? Are banks truly terrified of lending to small businesses? No — because runaway and reckless small business lending wasn’t the cause of the Great Recession. That dubious honor belongs to sub-prime mortgages, which were easier to get than a vending machine soda (plus a menu of financial derivatives so convolute, that not even the people selling them understood what they were all about — and they still don’t).
Rather, in the aftermath of the Great Recession as the economy was recalibrating — that is, as people’s attentions were turned elsewhere, like to their shrinking 401(k) and shaky employment situation — banks switched lanes and started focusing aggressively upstream towards large organizations with deeper pockets. After all, it costs about the same for a bank to underwrite a $50,000 loan to a small business, as it does a $2 million loan for a large enterprise.
However, there is a silver lining here for small business owners who don’t understand why they’re on the outside looking in when it comes to accessing working capital: thanks to bank arrogance and short-sightedness (the two tend to pair nicely) the alternative lending marketplace has grown massively in recent years, and a number of reputable companies — such as National Business Capital — are leaning forward to fill the small business funding gap.
In fact, some of the products these companies offer are so flexible and small business friendly, some business owners that qualify for a bank loan are opting instead to borrow in the alternative lending marketplace — chiefly because the process is much faster and simpler, and also because there are a variety of innovative products available.
The bottom line? Small business owners are racing into the alternative lending marketplace to get the funding — and the respect — they deserve. And there’s no fake news about that!
Author: Chans Weber
