When Should A Business Look To Credit For Growth?

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Credit is a great tool for businesses looking to secure new expansion, but securing it can be a difficult process. Right now, that process is looking more difficult than ever with the Financial Times of London reporting that small businesses are struggling to secure even modest funding. For businesses that need that extra line of credit to fuel growth, there has never been a more important time to make a real consideration over if, and how, they should secure new credit lines, and what their options are.

Looking to alternative sources

With banks generally less inclined to loan to small business, third party lenders are receiving more attention than ever. The benefit of these businesses is that they can often operate under different terms, typically more flexible, than the big banks. Unforeseen boosts to the profits of big operators like Citibank are, according to CNBC, fueling this economy in a trickle-down fashion and, generally, making more funds available for third-party lenders. The payoff is high interest rates; however, as industry experts Crediful (https://www.crediful.com/guaranteed-installment-loans-for-bad-credit/) assert, well-organized businesses that can commit to shorter repayment periods will benefit despite the higher rates of interest. If that sounds like you, it can be an option to look away from institutional lenders and towards smaller third-parties.

The crowdfunding scene

Another valuable option for businesses is via crowdfunding. A distinct benefit of crowdfunding is that it often doesn’t work exactly like credit does; your funders exchange money either as investors, or as backers that expect premium returns in terms of your products. The clear downside here is that non-fulfillment can lead to a wrecked reputation, but these risks are much the same in other businesses. Crowdfunding is become more and more viable with the liberalization of regulations concerning the practice; the SEC broadened crowdfunding rules in November 2020 to allow a $5m capital limit. Crowdfunding can be a great way to raise new lines of capital while still operating the business, and without needing to pitch to outside parties.

A return to the norm

The future may hold a brighter note for small businesses, however, with big tech players Amazon looking to disrupt the banking industry with small business loans. Primarily focused towards digital business, Amazon are working with Goldman Sachs to offer loans with relatively high rates – 6.9% to 20.9%. These do, however, remain competitive with rates currently being offered by many of the larger institutions and certainly more than third-parties, and can offer up to $1m in capital which is a fairly big number for most small and medium enterprise. This could offer a legitimate third way in which businesses can find new credit lines, and in a far more digitally active way than classic lending offers.

For that reason, small business can be optimistic. Lending should open up again in a way that benefits SME, especially digital-focused enterprise. In the meanwhile, looking to smaller focused lenders can help to provide much-needed growth.

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