The face of business lending has changed quite a bit over the last few years. In an attempt to dump toxic assets, many major banks have cut out self-employed startups and professionals from their loan portfolios. The reason for this is that the default rate on these loans is exceptionally high, especially in today’s economy.
If you are a well-qualified borrower with no negative marks on your credit report, good income history, etc., you shouldn’t have any trouble getting a loan, even in today’s market. But who is funding the rest of these business loans?
People are turning to non-traditional lenders for their business loans more often. This segment of niche lenders has been growing rapidly in recent months in order to pick up the slack where traditional banks have left off. Interest rates tend to run a bit higher in this segment, but the approval process is also less stringent.
One exception to the recent changes in bank lending includes those banks using the SBA Loan Guarantee Program. This program protects the banks from loans that go unpaid by guaranteeing a portion of that loan. Most banks will use this program on enough loans to guarantee about 10% of each loan. However, this really depends on the fault tolerance of the bank.
Business loans are seeing quite a few new players in recent years. This trend is expected to continue as banks avoid risky startups and as the SBA continues to encourage banks back into this segment with loan guarantees.