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Large banking institutions are changing
the way they respond to small businesses. In an effort to improve their image
in the wake of the Great Recession and reclaim business lost to other types of
lenders, big banks are focusing on how they can help entrepreneurs with their small business
startups.
If you can’t beat ‘em, join ‘em
“Big banks are helping small businesses by
teaming up with alternative lenders that specialize in providing fast,
short-term loans,” says finance specialist Priyanka Prakash of FitBiz Loans, a loan search platform for small business owners and entrepreneurs.
A survey by PayNet showed
that, between 2009 and 2015, the amount of capital offered by
banks to small businesses declined 15 percent. During the same time
period, alternative lenders increased their market share from 10 percent to 26
percent and it continues to grow.
“Banks are troubled by this trend and
don’t want to lose access to small business owners, so I think we’ll see them
piggyback more and more on the backs of small business alternative lenders,”
explains Prakash. “Small business owners benefit from this cooperation because
more options mean better rates on loans.
“Initially, banks treated alternative
lenders as rivals, but as banks have lost more and more business to them, they
are seeing the need for cooperation and partnership,” she continues. “Last
year, J.P. Morgan teamed up with Chase and Lending Club partnered with Citigroup—partnerships aimed at providing funding to underserved small businesses
or small businesses that are unable to get a bank loan.”
Take a look at some of the businesses
making use of this shift; if you’re a business owner yourself, maybe you can
get in on them:
Mission Main Street Grants
Tilit Chef Goods provides
culinary professionals with some of the best coats, pants, aprons, and
accessories in the industry. This small business was a 2015 recipient of
Chase’s Mission Main Street
Grants, an award that is helping partners Alex
McCrery and Jenny Goodman take their business to the next level.
“Our small business was awarded a grant of
$100,000 allowing us to ramp up much-needed inventory and expand our showroom
and workshop space,” says McCrery. “Chase has been behind us in other ways,
including sending us to a seminar at LinkedIn for marketing education.”
LinkedIn is
the premier sponsor of Mission Main Street Grants which, this year, will award
each of 20 small businesses a $150,000 grant from Chase, a trip to LinkedIn
headquarters for a webcast seminar, and a toolkit, which includes guides on
marketing and publishing on LinkedIn.
Goldman Sachs 10,000 Small
Businesses
A $500 million investment funded by
Goldman Sachs, 10,000 Small Businesses, connects
startups with business education, access to financial capital, and business
support services that are designed to remove barriers to growth and give young companies a
few more arrows in their financial quivers.
The program has committed $200 million
toward scholarships, faculty training, and technical assistance at community
colleges and business schools. The remaining $300 million is dedicated to
increasing the amount of capital that is available to small business through a
combination of lending and philanthropic support to community development
financial institutions (CDFIs).
The program also provides business support
services in the form of partnerships among national and local business
organizations, as well as professional services firms,
to help small businesses make the most of their newly acquired financing and
management training.
The Finance Collaborative
A collaboration between Goldman Sachs and
the Opportunity Finance Network (OFN)
has given rise to the Finance Collaborative, which provides “24 mission-driven small business lenders with an
intensive two-year program of peer learning, training, and technical
assistance.”
The new program will address the decrease
of mainstream finance serving small businesses and make responsible, affordable
credit more readily available. The Finance Collaborative, according to the
website, “…builds the capacity of CDFIs and other mission-driven lenders to
deliver responsible and affordable loans to small businesses and entrepreneurs
across the nation.”
OnDeck Capital Inc.
Experts with The Wall Street Journal say
that OnDeck Capital, Inc. is
“the clearest sign yet that large banks are choosing the path of embracing
up-and-coming lenders rather than facing off against them.”
Launched by Chase in 2007, OnDeck combines
a “passion for Main Street with cutting-edge technology to evaluate businesses
based on their actual performance, not personal credit.” Traditionally, lenders
look only at the personal credit scores of small business owners to make loan
decisions. OnDeck also focuses on the businesses themselves, which leads to
significantly higher approval rates.
The process sounds quite simple: Small
businesses apply online or by phone, receive a decision in minutes, and can
have funds in hand (via Automated Clearing House (ACH) or wire) in as little as
24 hours.
The Ink Credit Card
Lisa Chu owns Black N Bianco, which sells adorable tuxedos and formal wear for babies and children.
“Big banks have been stepping up their connections with small business by
making loans more affordable and by offering additional financial aid
assistance,” says Chu. “Chase recently relaunched Ink .
. . the card offers small business owners a chance to build up credit while
offering supportive business rewards.”
“Big banks see an opportunity to utilize
the sophisticated underwriting algorithms used by alternative lenders,” says
Prakash. “Big banks still rely primarily on credit score to evaluate business
owners’ credit risk. Alternative lenders use multiple data points, such as
business revenues, social media data, and Better Business Bureau ratings.”
To reclaim their piece of the action, big
banks are using their partnerships with alternative lenders to get in on the
technology and service-oriented techniques that the alternative lenders know so
well.
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