In pursuit of a small business loan

Loans have been harder to come by for SMEs since the financial crisis and larger companies, being lower risk, have taken the lion's share. Into the void have stepped alternative lenders providing options for small businesses.

Securing a bank loan can be an arduous business for funds-seeking smaller businesses. In fact, according to CEB analysis of US Federal Reserve statistics, less than a fifth of small business loan applications are approved and applicants spend more than three working days pulling together the documentation they need to apply.

It's a daunting undertaking for the small business owner or start-up entrepreneur who wants to focus on what he or she does best – building up the business that is their passion and competing for sales to increase their revenue. It's also a potential hold-up to their innovation as applicants can wait weeks to hear if their loan is approved or not. They may go around the loop a few times if they're asked for further information.

Alternative lending options, such as peer-to-peer lending offer convenience and speed, generally for a higher premium. They have become a viable alternative for SMEs. In fact, a CEB survey of US small business owners found a quarter had used alternative lenders and 62% of respondents preferring them cited ease of set-up and use. CEB suggests a convenient application process forms the basis of many non-bank lenders' customer acquisition strategy. On the flip-side, borrowers typically pay more in return; CEB's survey found that of the small businesses favouring banks 29% called out prices.

Alternative lenders endeavour to meet customer needs for a simple, accessible application process with rapid turnaround. Traditional lenders still aiming to target the small business segment will need more than just a user-friendly website and a simple online form. The front-end is just the surface. It needs to be supported by efficient back-office processes and systems which will take a migration away from manual processes in favour of digital ones and the embracing of automation.