For some, owning a business is a dream born from the desire to work independently and make their passion their career, for others it comes out of necessity due to a difficult job market or changes in their industry. With nearly half of the U.S. workforce employed by a diverse range of small businesses, from local restaurants, to tech start-ups and everything in between, the U.S. economy is dependent on small businesses and has been for centuries.
When the Great Recession of 2008 caused widespread closures of community banks and local credit unions, the access to capital many small businesses throughout the country relied on diminished. Historically underserved communities like those in rural areas or minority neighborhoods were directly affected. Other groups, perhaps not immediately thought of as underserved, like women and Millennial business owners, found the credit requirements of traditional lenders increasingly more difficult to meet. The advent of online lending is filling in the gaps.
Disparity in access to capital can simply be a matter of location. Small-town banks that once thrived in vibrant farm communities are now closing due to an inability to grow, a struggle shared by other rural businesses. Historically, rural businesses have a track record for surviving longer than their urban counterparts, but growth takes longer. Unlike other underserved communities, business owners in rural communities also have less access to business services like coaching and mentoring. In areas with fewer brick-and-mortar lenders and professional services, online lenders and service providers can meet their needs. Online lenders like Lendistry offer longer term loans to meet the needs of businesses in slower growth areas, and have resources like business coaching available to borrowers.
Minority-owned businesses face a number of challenges when trying to obtain funding for business establishment, expansion, and growth particularly with the loss of local banks with ties to their communities. According to the US Department of Commerce, minority-owned businesses are more likely to be declined for funding than non-minorities, receive lower loan amounts, and pay higher interest. Fear of being declined for loans and starting with lower wealth levels have been cited as two reasons for the disparity. Despite the challenges, minority-owned businesses have increased by nearly 35% between 2007 and 2012. Difficulty in accessing capital for growth, however, poses a threat to these businesses who have lower receipts than comparable non-minority-owned businesses. While some online lenders rely solely on computer algorithms to determine credit worthiness, Lendistry has a human component to their approval process which allows their sales team to speak with business owners, understand their funding needs, and find creative solutions to help their businesses grow.
Women-owned businesses account for 38.5% of all US firms but have similar challenges in access to capital as minorities. Reasons cited differ, however. Women-owned businesses are statistically younger and newer, characteristics not viewed favorably by traditional lenders, and women business owners ask for less funding, echoing the gender pay gap. Like minority business owners, women also believed they would be declined for traditional loans. In a 2009 National Association of Women Business Owners (NAWBO) survey, 63% of NAWBO members responded that they used credit cards for business expenditures, and only 13% used a commercial or bank loan, which means most women-owned businesses are paying higher rates for working capital. Lendistry believes responsible rates are good business, and won’t fund a loan if it isn’t affordable for the borrower.
Perhaps the least acknowledged underserved community is Millennials. Now in their 30’s, and burdened by hefty educational loans and a post-Great Recession economy, Millennial business owners have less capital than previous generations to fund their own businesses. Lower income, less savings, and big debt make accessing capital from traditional lenders nearly impossible. Intersectional Millennials who are women, minorities, and/or live in rural areas face compounded challenges. Rates of entrepreneurship have been in steady decline since the birth of the Millennials, a trend in conflict with the ideal of the American Dream and detrimental to an economy so dependent on small business. Providing access to capital to all business owners fosters growth, and provides opportunity to the business leaders of the future.
The United States was founded by small business owners and entrepreneurs, the spirit of which has become an integral part of our culture. Online lending has the potential to revitalize the belief in the American Dream. Technology allows online lenders to be the community banks of the 21st century by reaching all neighborhoods in the country with less restrictive qualifying requirements and competitive rates and terms. Lenders like Lendistry further embrace the essence of community banking by speaking with business owners and hearing their story personally, to come up with proactive, creative funding solutions. Believing in the power of small business to create jobs, build local economies, and strengthen communities, Lendistry has reimagined the land of opportunity, ensuring all businesses have equal access to capital.