Should The SBA Get Out Of The Way For Alternative Lenders?
By far the #1 complaint you hear from small business owners is the difficulty in obtaining working capital to operate or grow their business. Main stream community bankers are continually moving farther upstream searching for more lucrative business deals in an effort to compete with their bigger rivals. But this has lead to a shortage of capital for the businesses employing the very community banks serve. Perhaps it is time for a paradigm shift. Perhaps we should change the way we look at the role of non-bank lenders, e.g. alternative lenders.
In 2000 the majority of lending for small business took place at local banks, or at a local branch of a national bank. But by 2014 that shifted. Non-bank lenders are giving traditional bank lenders a run for their money providing more business access to capital.
In 2000 the majority of lending for small business took place at local banks, or at a local branch of a national bank. But by 2014 that shifted. Non-bank lenders are giving traditional bank lenders a run for their money providing more business access to capital.
Case in point, among the top 100 SBA lenders, Wells Fargo leads the pack with a little more than $266 million in small business loans. Yet the non-bank lender OnDeck approved more than double that amount last year.
OnDeck has posted 150% growth and more than $825 million in loan volume since it started in 2007. According to one estimate by Bloomberg, OnDeck's loan volume for last year alone surpassed $475 million. With numbers like that you have to wonder if it's time for the SBA to begin including non-bank lenders like OnDeck as SBA members
Other SBA Lenders Alternatives?
So what criteria would be required for an alternative lender to be accepted for inclusion in the SBA loan guarantee program? Most likely it would require a regulation at some level and a process for approval. However, non-bank lenders like CAN Capital, and dozens of merchant cash advance firms have figured out how to take a different underwriting approach to approve potential borrowers that streamline the process while protecting their assets.
Is it time for the SBA to recognize, dare I say legitimize, the alternative non-bank lending industry and allow them access to the same loan guarantee programs as traditional bank lenders? Would this not lead to, or at least accelerate, a decrease in the fees, or loan rates, that borrows pay? Isn't that a good thing?
I'm a long time advocate of community banking and I recognize that small business bankers are trying to help provide capital to businesses within their communities. But the challenges facing small business owners to obtain capital can't be denied. If non-bank alternatives meet their needs and can be done safely, why should the SBA not acknowledge that?
