(BPT) – Growing a business requires strategy, persistence and money. Even the most successful business owners occasionally need extra cash to expand their operations. However, getting this funding through a bank can be an uphill battle.
That was the case for Kate Lester, owner of Kate Lester Interiors, a luxury design firm based in Southern California. After Lester’s business took off, she set her sights on opening a retail space to attract even more clients.
“When the perfect space became available on the Pacific Coast Highway,” she said, “we didn’t have all that capital in the bank.” After reviewing her finances, she decided to apply for a bank loan. Despite being a longtime customer, and having excellent credit and zero debt, she was denied.
Unfortunately, this is a common occurrence for small-business owners across the country. According to a 2018 Fed Small Business Survey, nearly one in two small-business owners struggle to get the financing they need to expand and pursue new opportunities.
That’s largely because banks are still ignoring small businesses, despite their contribution to the economy.
A new report from Oxford Economics shows that:
- Small businesses are responsible for 60% of all jobs in industrialized countries
- And yet, in the United States, loans to small businesses make up only 0.7% of banks’ balance sheets
- Only 13% of business owners who applied for a commercial loan of $25,000 to $100,000 from a bank received at least half the money they asked for
Continued neglect from big banks is leading small-business owners to seek alternatives. After being rejected by her bank, Lester called Funding Circle, an online small-business loans platform that connects business owners who need capital with investors willing to provide it.
“We thought it would be a longer process because of what happened when we went to our bank,” she said. “I spent eight hours on the phone with my bank just trying to get someone to talk to me.”
Banks are notorious for having tedious loan application processes and lengthy turnaround times. Compiling paperwork for an application can take multiple days, and business owners often have to wait another several weeks or months just to receive a response.
Online credit providers, on the other hand, pride themselves on offering faster, simpler financing to small businesses without sacrificing on affordability. For business owners like Lester, maximizing time and resources is crucial.
“Time is something that’s super valuable to me,” she said. “For me to go to a bank, and maybe get one or two points difference in the interest rate, wasn’t worth all the back and forth it would have required.”
Today, Lester’s sales are up 150% after receiving a loan from Funding Circle in 2017. Her story, while remarkable, isn’t exceptional.
Online providers are driving growth and profits for millions of small businesses in the U.S., in turn creating more jobs and boosting the economy. In 2018, businesses borrowing from Funding Circle supported 38,000 jobs and contributed $2.8 billion to the American economy (measured in gross value added).