Sales and marketing, Small business

Small Business Loans: Finding Alternatives

In the world of finance, big U.S. banks have apparently forgotten about the small business market. That reality is forcing IT entrepreneurs and family-owned companies to find small business loans and other financial infusions from alternative sources.

Consider these data points from The Wall Street Journal:

  • 10 of the largest banks issuing small loans to business lent $44.7 billion in 2014, down 38% from a peak of $72.5 billion in 2006.
  • Through August 2015, banks this year originated 43% of business loans of up to $1 million, down from 58% for all of 2009, according to PayNet Inc.
  • Nonbank lenders increased their market share to 26% from 10%, with corporations that lend to their business customers or suppliers making up the balance.
  • Banks of all sizes held $598 billion in small loans to businesses as of Sept. 30, according to the Federal Deposit Insurance Corp., down nearly 16% from a peak of $711 billion in 2008. By contrast, loans to larger companies increased 37% during that time.

As small business loans dry up, the report says, entrepreneurs increasingly lean on credit cards and high-interest alternatives. Some of those lenders can charge 50 percent more in interest.

Some startups are caught in a catch-22. They're seeking sub-$100,000 loans -- which aren't very profitable for big banks. Or, the businesses are less than 10 years old -- a timeline that's too short for many banks to effectively weigh a company's true credit risk.

Financing for VARs, MSPs

Greg VanDeWalker
Greg VanDeWalker

Still, there are plenty of alternative financing and lending sources across the IT channel -- including distributors and major IT vendors that have financing arms.

Dell Financial Services, for instance, has worked with roughly 2,000 partners on about $5 billion worth of financing this year, according to Frank Vigtagliano, VP of North American Channels at Dell.

Also of note: GreatAmerica Financial now works with roughly 1,200 VARs, MSPs and resellers. Of those, roughly 450 now leverage GreatAmerica's Hardware as a Rental (HaaR) program, according to Senior VP and GM Greg VanDeWalker.

Online Lending Startups

Meanwhile, big banks are starting to take a second look at small business lending -- perhaps by working with startup online lenders.

A key example: JPMorgan Chase is working with OnDeck Capital. The duo plans to build a new Chase lending product for small businesses in 2016. But here again, small business owners will face higher-than-usual interest rates. OnDeck's interest rates can span 18 percent to 36 percent, two to three times the usual rate.

For channel partners, the smartest move is likely to double-down on the vendor relationships you already have. Find out if those vendors have financing or lending arms. Or work with a financing firm that truly understands IT channel partners. While I can't directly endorse GreatAmerica, for instance, the company certainly has a working knowledge of the VAR and MSP landscape.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.