4 Reasons Small Businesses Need Nonbank Lenders More Than Ever
Nonbank lenders tend to be more entrepreneurial and innovative.
The 2008 financial crisis fundamentally changed the lending market. Legacy banks became more risk-averse, tightening up lending criteria, resulting in reduced small- and medium-sized Businesses (SMBs) access to capital. This left a gap in the market for nonbank lenders to fill and created a major shift in the competitive financial services landscape. A report titled "The Rise of Finance Companies and FinTech Lenders in Small Business Lending" noted, “during the recovery period [following the financial crisis], nonbank lenders expanded annual lending by 70% from 2010 to 2016, significantly more than banks.”
Nonbank lenders are increasingly taking market share from traditional banks, especially in small business lending, a market that has historically been underserved by legacy banks. The rise of nonbanks is being driven by a high degree of specialization, innovation, personalization and acceleration. These four drivers of nonbank lending are even more significant and timely because of the pandemic. SMBs turned to nonbank lenders for quick relief through the Paycheck Protection Program (PPP), businesses sought out loans to develop their e-commerce presence, and there has been an increase in new business applications from the unemployed-turned-entrepreneur.
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