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The Tale of Two Markets

Watching business news the other day I saw a senior executive from a major bank suggest that his bank (the banks) were there as lenders to small businesses, but the small business community was in fact the party not at the table. He suggested supply was there, but demand weak -- the implication being that small business was perhaps reticent to invest and expand in uncertain times.

That is not my experience as a provider of capital to small businesses. I am seeing robust demand from small businesses that -- macro aside -- are very interested in funding their dreams.

Whether the banks are back or not, as an active source of lending to small business is unclear. I have seen data both supporting and challenging that contention.

So how can we both be right -- no demand and high demand? What we may be seeing is a tale of two markets.

The broader point worth mentioning, and why a blanket statement on small business lending activity is full of holes, is that the profile of the small businesses the banks lend to is just a slice of the overall small business marketplace. The companies banks refer to as small businesses typically possess long standing unblemished track records and require loans of significant size -- enough for lending to be a profitable endeavor for the banks. Based on that profile, it is possible those types of small businesses are not actively seeking capital to invest in their businesses.

But that is not the case in the other slices of small business. Most small businesses fall in a different category -- in fact, there are five million small businesses with fewer than 25 employees that fall outside of the banks description of small business but represent 40 percent of all jobs in the United States. Many of these businesses are newer (less than 5 years in business) or might have faced adversity over the years (and triumphed) in growing their business, and in many ways represent the true entrepreneurial spirit of small business.

These overlooked companies have driven tremendous demand for lending services as they invest in growing their business. Looking for options that can offer immediate access to capital, more thoughtful, holistic reviews of a small business' strength, lending in smaller increments and in many cases hi(er)-touch customer service.

We do not exclusively serve these 'small businesses.' In fact, a fair share of our customers qualify for bank loans, but favor the expedience of our funding solutions and hi-touch approach to customer service. That said, we have provided over $500 million to these small businesses, many of whom fit the profile of the 'younger,' small businesses, making us a leader of a fast growing alternative lending industry that will lend nearly $3 billion to small businesses this year.

At its heart, small business is about entrepreneurs going for it, taking on risk and chasing their dream, with access to funding being core to their ongoing success. Few of these entrepreneurs experience growth and success without interruption, which leaves them outside the typical profile of a company that might receive bank funding. If banks only live in this rarified world, I believe there is a much broader conversation to be had in regards to small business demand.

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