Small Business Funding, the SBA, and Alternative Lending

According to the most recent census (2011) there are 29.1 small businesses in the US. 98% of them have less than 19 employees. Of the 2% 1.9% have 20-100 employees. Just about every statistical category indicates that the SBA has forgotten about the 98% and are focusing on the 2%.

Since 2008 there has been a re-classification of 66,000 larger corporations with over $35M in revenues and 1500+ employees now being deemed as small businesses. This number will grow to include 100,000 more “giants.” This has hurt the 98% true small businesses with less than 19 employees and amplified the need for alternative lending.

Small Business Funding Fact

These 98% need loans of $50,000 to $250,000. The average SBA loan was $182,000 and 24% were under $100,000. After the expansion in 2013 this average ballooned to $547,000 and less than 9% were under $100,000. The reclassification of 66,600 big companies to small allowed banks to give a reduced number of loans to a lot fewer, much bigger companies, and still proclaim they are serving the small business community. Just about everything the SBA does makes success easier for large corporations and harder for small businesses. Every time the SBA gives a loan to a large corporation it allows them to expand and go after the customers of the underfunded 98% reducing available dollars for small businesses. The SBA now defines “small” as 500 to 1500 employees, and up to $35.5 million in revenue. Alternative lending picks up steam.

Why Alternative Lending Evolved

This is the primary reason why and how alternative funding has evolved. Traditional banks do not pay attention to “real” small businesses. The government’s own data is screaming this message yet they fail to admit it. The SBA does not want to waste their resources on those businesses that need less than $100,000 or have fewer than 19 employees. Over 28 million businesses fall into this population. Where do they go when they need a capital infusion? The alternative lending market is willing and able to take on the task of providing an option. While it may be more expensive, it seems to be the only choice. The current alternative lenders aspire to fill this financing void and will generate a lot of revenue due to the country’s unwillingness to pay attention to real small businesses.