Latest Main Street Report findings offer cautious optimism as small business bankruptcy rates and delinquencies decline
In just one week, Augmented Reality (AR) proved itself to be the Next Big Thing in popular entertainment. Within days of Niantic Labs release of Pokémon Go, in which players "hunt" and "capture" fantastical creatures using their smartphone cameras, tens of millions of Americans have become hooked on the game. According to media reports, the app has already been installed on twice as many phones as Tinder™, is used twice as much as Snapchat, and is surpassing the all-powerful Twitter in its number of daily active users. The skyrocketing value of parent company Nintendo's stock price has provided further testament to the game's perceived long-term stamina.
Experian Business Information Services and Moody’s Analytics have joined forces to develop the Experian/Moody’s Analytics Main Street Report. The report leverages a combination of business credit data (including credit balances, delinquency rates and utilization rates) and macroeconomic data (including employment rates, income, retail sales and investments) to provide a more accurate assessment of the health of small businesses.
According to the U.S. Small Business Administration (SBA), small businesses account for 99.7 percent of U.S. employer firms and 64 percent of new private-sector jobs. So it stands to reason that the way small businesses go, the economy probably follows suit. One of the biggest challenges for small businesses, however, is the ability to access capital. In order for them to grow, they need money. Many of these smaller firms have limited to no credit history on file. For that reason, it is imperative for lenders and trade creditors to leverage comprehensive data sources (both financial and non-financial), enabling them to make smarter business decisions and help small businesses access credit.
Businesses are faced with the need to collect on delinquent accounts. When pursuing these past-due accounts, the most successful way to approach them is with a combination of perseverance, politeness, and professionalism. This serves the dual purpose of increasing the likelihood of receiving a prompt payment and also staying within the guidelines set forth by the Fair Debt Collections Practices Act.
Simply put, online marketplace lending is here to stay. Virtually unheard of just 10 years ago, Web-based companies that offer funding options beyond traditional bank loans have grown considerably. Small businesses — drawn by the easy application process and flexible repayment terms, have become increasingly comfortable working with online lenders, which offer rapid access to capital, a wide array of niche products, and a low-friction customer experience.
Marketplace lending has become a dynamic source of small-business financing. In 2013, marketplace lenders funded customers to the tune of about $3 billion, twice the volume from the previous year. These numbers are expected to continue to rise steeply throughout the rest of the decade as customers become increasingly comfortable with the concept.
In the wake of the Great Recession, numerous entrepreneurs began to use online lending platforms to offer capital funding programs, short-term loans and other business-to-business (B2B) credit plans to small-business owners who were otherwise unable to do business with traditional banks. Today, much has changed, and "marketplace lending" has grown with loans coming in a wide variety of types, sizes, lengths and terms. The characteristics marketplace lenders tend to share include:
This week, we invited Charles H. Green to offer his perspectives on the online marketplace lending sector. Charles is Managing Director of Small Business Finance Institute, which provides professional training to commercial lenders for banks and nonbanks. He has written extensively about the marketplace lending sector, including the recent Banker’s Guide to New Small Business Finance (John Wiley & Sons, 2014). Earlier in his career, he founded and served as President/CEO of Sunrise Bank of Atlanta. The evolution of commercial lending over the past seven years has certainly had its share of ups and downs. Remember the ominous days leading up to the financial crisis when it seemed like everything was teetering on collapse? In the end, and more than five hundred bank failures later, the economy found a very slow path back to growth.
Online lenders represent a valuable resource for small businesses in need of working capital. Also known as "alternative" lenders, they are particularly useful to new businesses lacking the long, detailed credit history that banks and traditional lenders usually require to underwrite a commercial loan.
The Responsible Business Lending Coalition — a group of nonbank small-business lenders — announced a self-regulatory program during August that is designed to bring greater clarity and consistency to its industry’s pricing and consumer protections. The Small Business Borrower’s Bill of Rights outlines six primary principles that those signing the pledge will abide by when lending to small businesses. They include:
