More Small Business Owners Now Turn to Alternative Financing

In the time since the end of the recession, lenders have been far more restrictive about the ways in which they grant certain types of credit. For consumers, this has mainly impacted would-be homeowners looking to obtain a mortgage, while small businesses have likewise been impacted by tight credit that makes it far more difficult to obtain financing. As a consequence, many owners are now on the lookout for new, alternative types of credit to grow their companies.

Over the past few years, a large and growing number of small business owners, who may have become frustrated with their inability to obtain credit through traditional means, are now starting to seek out new sources for some cash to help their companies, and that includes peer-to-peer lending, according to a report from Small Business Trends. This trend has grown so popular so quickly that over the course of next year, it’s expected that some $2 billion worth of loans will be granted through just one major peer-to-peer source for 2013 alone, and that this number will be doubled next year. Further, experts project that the overall total for all such loans will exceed $20 billion by the end of 2016.

Often, these peer-to-peer loans are for relatively little amounts of money, with some services capping values at some $35,000, while others will still allow financing of more standard and larger amounts, ranging from $100,000 to $1 million, the report said. Usually, the latter types of financing come with terms of between six and 15 years, and rates ranging from 5 to 15 percent.

“We looked at the world and saw that what was a bankable loan five to seven years ago isn’t bankable, not because businesses were any worse, but [because of] changes in risk tolerance and regulation,” Ethan Senturia, a co-founder of the peer-to-peer lending company Dealstruck, told the site.

Of course, when it comes to having access to greater liquidity, some owners may also be able to benefit from freeing up some cash from their own obligations, perhaps in addition to seeking lending from non-traditional sources. For instance, reducing costs for small business insurance may allow them to enjoy far greater flexibility going forward. More affordable policies including those for workers’ compensation or general liability insurance could potentially save companies a large amount of money over the course of a month or year.