Small Business Financing Trends to Watch
As a small business evolves, so do the financing options available to them. Here we’ll explore some of the small business financing trends to watch in 2021.
The Expansion of Online Small Business Loans
In the last year or so, online lenders have played an even bigger role in providing small businesses with much-needed funding and financial relief. With the added convenience of online loans, businesses now have access to faster loan processes and at times, more competitive rates.
The availability of online-only lending may be thought of as a subset of the larger “fintech” trend seen across the lending space. These digital technologies provide a tailored service for small business owners, allowing for a top-tier borrowing experience. In addition, many don’t require a perfect credit score in order to qualify.
Alternative Financing Sources
While banks and credit unions were once the go-to place to request a small business loan, there are now a wide range of alternative financing sources that are available to small business owners.
For starters, a grant is an award of money given to an eligible person or organization for a specific purpose. These grants come with no repayment conditions and can be issued by the government, private or corporate foundations and other granting institutions.
Aside from grants, investors may also be interested in funding a small business. Angel investors usually offer capital in exchange for a piece of the business, while venture capitalists tend to focus on making larger investments with the intention of a high return.
Crowdfunding is another option for raising money. Unlike the traditional loan process, crowdsourced funding is an online method where small businesses request microloans from large number of people who, in turn, provide a single small loan to the collective fund.
Government Assistance and Tax Incentives
The U.S. government is a major influencer of small business financing, providing assistance and tax incentives to businesses of all sizes. Federal tax incentives allow small business owners to reduce their tax liabilities, while government-provided grants help provide businesses with access to capital.
Aside from providing capital, the government can help small businesses access and apply for financing through the Small Business Administration’s (SBA) loan programs. The SBA works with partner lenders to offer improved terms on loans to eligible small businesses, making it a great way for businesses to gain access to much-needed funds.
Data as Collateral
In the past, small business owners needed to put up a physical asset to back a loan—usually in the form of a traditional asset such as a house, car, or valuable item—but this is slowly starting to change.
Put simply, data as collateral are contracts used to secure a loan against the future revenue of a company, such as a company’s income or customer data. It allows the lender access to a business’s records and accounts, with the funds released once the loan is paid in full.
This strategy can be beneficial to small businesses because they don’t have to put up a physical asset and can access funding quickly with minimal paperwork.
The financing options available to small businesses have evolved greatly over the years, giving business owners more choices when it comes to accessing the capital they need. From crowdfunding and alternative financing options to the SBA and data-based loan agreements, there are now an array of options available to small business owners.
By having an understanding of these small business financing trends, business owners are in a better position to make informed decisions when it comes to accessing the capital they need to achieve their goals.
