The American economy is strong, growing nearly 6% over the last year — the most significant annual increase it has seen since the early 1980s. As a result, business is booming, and small businesses need money to keep up with customer demand.

Demand for Business Loans Is Up

Demand for commercial and industrial loans increased near the end of 2021, signaling that businesses were not expecting a drop in consumer spending despite historical inflation. Instead, companies expect continued consumer spending and economic growth. They’re seeking ways to invest in their businesses to rebuild inventory and deal with supply chain issues that were prevalent in 2021.

These businesses aren’t just turning to traditional forms of commercial lending. During the same period, lenders reported an increase in business client inquiries about lines of credit and credit cards as funding sources. They need access to funding to ensure that they have available inventory to meet customer demand and invest in equipment and deal-making to grow the business.

Alternative Underwriting and Competition From Fintech Are on the Rise

A 2016 McKinsey report on Fintech in the banking industry highlighted how technology disruptors were making gains in what used to be a traditionally resistant sector. Less than half of small businesses are able to meet their financing needs, and a significant number of them don’t receive the funding they need even if they’re approved for a loan. Compared to traditional banks, Fintech disruptors can be more nimble and responsive to the needs of their customers.

This has not gone unnoticed by the big banks, many of whom are considering ways to give small businesses more access to money. Alternative underwriting is on the rise as more commercial lenders accept non-traditional data points like social media counts, credit card transactions, and business banking histories to evaluate applicants applying for a business loan. It’s a good move for businesses, but it doesn’t eliminate cumbersome policies and corporate bureaucracies that interfere with a company’s ability to get a loan.

Financing Products Available to Businesses

Still, banks and credit unions are the first lenders businesses consider when they need funding to expand the business, purchase inventory, or increase cash flow. The products they offer include the following:

• Business loans: A business loan is a loan extended to a business (instead of the business owner). The business agrees to pay back the money borrowed in installment payments over a period of time. The company and its owner need good or excellent credit, as well as documents detailing the amount of time that the business has been open and financial records.
• Credit cards: A business credit card works like a personal credit card, but it’s designated for business expenses. They are easy to apply for, but they typically come with higher interest rates than loans do.
• Channel financing: A form of reverse factoring, channel financing is the practice of hiring a bank to make payment arrangements with the supplier. This lets the supplier get paid while the business customer extends their payment terms. It can be a win-win situation as long as the agreed-upon terms work for the supplier.
• Equipment loans: Businesses can use these loans to purchase equipment, including everything from factory machinery to desks and farm equipment. They can be a viable option as long as the business qualifies for the loan and doesn’t need cash for purchases that don’t conform to the loan terms.
• Inventory financing: Inventory financing is a form of short-term lending that uses the company’s inventory as collateral for the loan. This type of loan can work for a small business with inventory on hand that it doesn’t need to sell immediately.
• Lines of credit: Like a credit card, a business line of credit has spending limits and begins accruing interest as soon as you access the funds. They work for short-term funding, such as covering off-season capital or managing cash flow.
• Vendor financing: With this type of financing, a vendor loans money to a business customer so the customer can complete a purchase with the vendor. It helps build a relationship between the vendor and customer.

To qualify for these products, the businesses typically must demonstrate how long they’ve been in business and meet revenue and credit score requirements. While this is a viable option for businesses that meet the lender’s criteria, they have to go through a lengthy approval process that can potentially slow down operations on both sides of the transaction.

When you partner with Loanspark, you give your customers an alternative lending option. Instead of interrupting the transaction to finance the purchase, they can have access to business funding when they place an order. Compared to big banks and commercial lenders, Loanspark has more flexibility to approve applications and can complete the entire loan process faster. Your customer gets the money they need. You score the sale and generate an additional income stream.

Best of all, Loanspark handles all of the details. You don’t have to worry about licensing, compliance, technology, or support. Find out how you can offer your customers an exciting business lending program and discover why everyone needs Loanspark.