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Small Business Loans Changing in Big Ways

601px-American_CashA recent headline said, “Small Business Lending Reaching ‘New Normal.’” The story outlined how the Pepperdine Private Capital Access Index for small businesses rose to 27.7 from 27.1 in February. It gives us a measure of demand for and ease in getting financing, including loans.

Further, 44 percent of the small businesses surveyed last month said they received bank loans during the previous three months. That’s a pretty big jump from 39 percent in February and 34 percent last fall.

Restrictions easing

This is being called the “new normal” and it’s good to see banks easing up somewhat on the lending restrictions that have been in place since the recession. However, it’s not the only change the lending industry is experiencing that define a “new normal.” New sources of financing are emerging as well as new places small business owners turn to when they need an influx of cash.

A solopreneur friend of mine just received an unsolicited offer from PayPal for a cash advance. Most of his clients pay through the online payment provider, so he has a long history of pumping cash through his PayPal account. So far he hasn’t taken them up on the deal, but if he does, they’ll just take a percentage of his cash flow until the debt is repaid. This is similar to the Square Reader cash advance program we discussed here recently.

Online lenders

Lending Club has pioneered the peer-to-peer loan model, including loans to small businesses. Unlike the Square Reader and PayPal cash advances, Lending Club loans are more conventional, with fixed monthly payments. Other online lenders include Kabbage, CAN Capital, Swift Capital, and OnDeck.

Perhaps it’s increasing competition from these newer lenders that is pushing traditional banks to loosen up the purse strings a bit on small business loans. But, whatever forces are driving the changes, I’m glad to see that it’s getting easier to obtain credit and I’m overjoyed to see more options for small businesses when it’s time to take out a loan.

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