Small business lending conditions appear to have improved in recent months. In an April Federal Reserve Bank survey, just under one-quarter of senior bank loan officers said that lending standards for small firms had eased somewhat over the prior three months. More recently, a private sector analysis of small business loan applications reported in July that both large and small banks are granting loan requests at much higher rates than they did a year ago.

This apparent improvement in capital availability for small businesses, while welcome, is still from a dismal base. In a 2012 survey by the American Sustainable Business Council, 60% of small business owners said they have faced difficulty obtaining loans, and an overwhelming 90% agreed that the availability of small business loans is a problem.

It is not just the smaller businesses who are frustrated; even larger, more established companies continue to have trouble getting bank financing. They are turning to specific lenders that have been a source of credit for Main Street USA for more than a decade. And a few of those providers are stepping outside the industry comfort zone to respond.


Filling a Credit Gap

These finance companies started out in the late 1990s providing funding to small restaurants and retailers that could not get bank money. The terms were short and the advances rarely topped the six-figure mark. The cost was higher than a bank, but when bank loans were unavailable, the comparison proved moot for an owner who needed capital to grow.

In the easy-money era, the market for these finance companies was limited. But with banks calling loans and rejecting even good credits beginning in late 2008, an influx of small businesses sought out these sources of capital, and the industry expanded rapidly. Adding short-term loans opened up the market to non-retail businesses. Even though these lenders were financing businesses that banks would not, the industry leaders emerged from the recession stronger.

No published data exists, but it is estimated that the sector funded $1.5 billion in 2012 alone. With capital flowing in from such firms as Goldman Sachs, Google Ventures and Wells Fargo Capital Finance, some industry insiders are predicting that funding could top $3 billion in 2013.