Rescued By Online Lenders, Businesses Say Borrowing Again | New
New York (AP) – Some small businesses that have had to rely on online lenders to bail out pandemics are making niche players an important part of planning their financial game and are ditching traditional banks altogether, I think of it.
Loans from online lenders have saved thousands of small business owners who were unable to obtain COVID-19 bailout loans from traditional large lenders. These owners are now repeaters, as requests are now processed in days instead of weeks.
Patrick Carver was loyal to a major national bank, but was disillusioned after applying for a paycheck protection program loan and did not respond for over a month and his application was turned down. At a friend’s suggestion, Carver tried an online lender. His request was approved in four days and he was able to get the money in a week. If you need another loan, start with the Internet.
“If you need a quick response when it comes to my business, I would choose one of those companies that emphasizes speed,” said Carver, owner of Atlanta-based Constellation Marketing. M. said.
The recently completed paycheck protection program provided more than 11 million loans, or more than $ 788 billion. Banks were inundated with more applications than they had ever processed, and many large applicants processed loans before SMEs.
Some small businesses with established banking relationships were rejected because they did not have the right mix of accounts. Some people did not respond or were refused without explanation. Many cash seekers have turned to small banks and online lenders with small businesses as clients.
According to the Small and Medium Business Administration, which approved the loans, online lenders and other state-regulated lenders processed nearly 251,000 PPP loans in 2020, for a total of more than $ 6 billion. In the 2021 loan cycle, which ended on May 4, these companies made more than one million loans, for a total of nearly $ 21 billion. The amount of those dollars was only about 1% of the amount of the program, which was money that many companies couldn’t get anywhere else.
Ahmande Grimes is considering a full transition to online banking as well as borrowing. He was considering an online loan before the pandemic, but at that time he believed traditional banks were the best option.
“My experience up to 2020 has been really impressive on the difference between online banking and traditional banking,” said Grimes, owner of Spartan Financial, a financial services broker in Nashville, Tennessee. I go. When he applied for a rescue loan from two traditional banks, the process seemed as complicated as applying for a mortgage. When he turned to online lenders, his application was immediately accepted and submitted to the SBA.
Grimes is considering an online bank that offers checks and other services. He does not manage cash in his business, so he can do all transactions electronically.
“I think there is an online bank that provides the services we need,” he says.
For homeowners who need a loan, speed can make a big difference. With traditional bank loans, it can take several weeks after you apply for the money to arrive. Online lenders don’t have to comply with federal regulations like banks, so they can process their requests faster, and in some cases, within hours.
According to a 2018 survey by the Federal Reserve and Federal Reserve Bank of Cleveland, homeowners want relationships traditional banks can offer, but they also appreciate the efficiency of online lenders. However, the ease and speed offered by online lenders have their drawbacks. It’s a cost.
Some online loans charge interest rates above 20% on your business credit card. Interest rates on traditional business loans can be less than 10%. (This was not a P3 problem. Congress set the interest rates on all loans at 1% throughout the program.)
It makes sense to pay higher interest rates, Carver says.
“Money is important, but time is important,” he says.
There are various estimates of the size of the online business lending market, but it is expected to reach billions of dollars and grow at double-digit rates over the next few years. Investors and the financial services industry recognize the potential value of online lenders. Listed in 2015, PayPal’s price almost doubled from before the PPP started, but the S&P 500 index rose 20% over the same period. Last year, American Express acquired Cavage, a banking service in addition to loans.
The PPP has gained the attention of online lenders such as PayPal and Square, said Karen Mills, who headed the SBA under the Obama administration and is now a researcher at Harvard University. These companies make loans based on information from their own database, and payment history is one example.
“They leaned forward because they were so committed to the success and the future of the small business segment,” says Mills.
When some small business clients of Kruze Consulting encountered bank failure, the accounting firm recommended that they try online lenders. All of these customers were on loan and the service was good.
“They’ll be using these online services again,” says Healy Jones, vice president of the company, which has offices in California, New York and Texas.
The PPP has been a teaching time for accountants because all lenders have seen different performance.
“We really see this as a weighting mechanism to determine which banks have customer service and organizational capabilities to help our customers in times of crisis,” Jones says.
For Grimes, online banking was once a start-up business and is well positioned to provide such support.
“They were small businesses. They understand me. They are me, ”he said.