Why are SBFA companies important to small businesses?

Traditional financing options for small businesses are disappearing. Since the 2008 financial crisis, the high cost of loan originations and servicing loans at traditional lending institutions has exacerbated a capital access problem for small businesses. Generally speaking, it costs a traditional bank the same to underwrite a $100,000 loan as a multimillion-dollar loan. It has become uneconomical for many financial institutions to make loans to small businesses in amounts less than $150,000, $250,000 or even one million dollars. As a result, there is limited focus on the small business lending market and the percentage of bank loans made to small businesses has reached record low levels.

What small businesses would benefit from alternative financing?

There is a significant small business market that is underserved by traditional financing. A 2014 Federal Reserve Bank survey found that more than 50 percent of small business credit applications sought loans of $100,000 or less. Further, many of these small businesses are not able to get what they need from a loan. Over half of the small businesses with revenues under $1 million received less than 50 percent of the credit for which they applied in the first half of 2014, which limited their ability to expand and hire.

The online marketplace lending industry is responding to small businesses’ demand for access to capital. By filling that need with technology-based solutions, the industry has created a cost-effective means to offer diverse loan options to small firms that would not otherwise be able to finance their growth.

What are the types of products offered?

(Ref: Milken)