This month, our Chief Marketing Officer, Victoria Treyger, was invited to participate in Xero’s Insomnia Busters Webinar Series along with Annie Hudspeth of the Small Business Administration (SBA) and Gene Marks, the owner of Marks Group PC and a frequent contributor to Inc.com, Huff Post, Entrepreneur.com and Forbes, who hosted the event.
If you missed it, don’t worry – you can still listen to the discussion and ask questions about financing, cash flow, and loan trends for small businesses. We’ve also written a recap below to give you an overview of everything that was discussed.
What Is The Lending Environment Like For Small Business Owners?
Annie Hudspeth of the SBA explains that although the small business lending environment was previously quite bleak with the recession, since the economic upturn in 2009, it has progressively gotten much better. The SBA has created programs to help the state of small business lending in the form of capital, microloan, and veteran programs. In fact, grants are more readily available than ever before. And even though the Small Business Administration itself does not lend money, they have helped create additional opportunities for small business owners to gain easier access to financing options. The SBA is a government guaranteed loan program that is only offered through participating, qualified lenders. The SBA guarantees a portion of the loan to the lender, which eliminates most of the lender’s risks and makes it easier for them to approve borrowers. Additionally, the SBA has created several training and counseling options to help small business owners learn how to receive financing.
Kabbage Extends Lines Of Credit Up To $100,000 Based On Business Data – But They Aren’t Secure?
Kabbage is an alternative lender, so the way we underwrite our loans is completely different from how traditional banks operate. “Technically this does mean our loans are unsecure,” Victoria said. “However, we are able to use technology and data science to understand the overall health of a business and lend based on that Kabbage Score, rather than on a credit score.”
Will The SBA Ever Use Technology To Guarantee Loans?
If Kabbage is able to use data and technology to create an entirely different loan approval system and constantly tap into that data connection to extend or decrease lines of credit based on the business’ overall health, Gene asked if this was something that is possible for the SBA and traditional lenders as well? Using real-time data to qualify candidates could change the entire state of small business lending in the United States.
As of now, all Small Business Administration loan applications are completed electronically and contain predictive scoring if you have a credit score under 350. Predictive scoring has the capability of giving a candidate an immediate response, but only if they meet the prerequisite credit score. For now, because the SBA gets saddled with most of the risk in small business loans, they will stick to traditional underwriting programs. However, as technology and data science continue to excel and advance in this arena, we could see some huge changes in the way lending is operated.
Federal Study Shows That 49 Percent Of Small Business Owners Are Having Trouble Accessing Capital
Treyger explains that although the state of small business lending is beginning to get much better, a little less than half of small business owners in the United States still have trouble finding financing. At Kabbage, we believe that lack of small business financing is a widespread issue and the biggest hindrance to small business growth in the United States. We believe this issue can be addressed with our data driven underwriting technology. It’s not really that banks do not want to lend, because they do. However, bank requirements are still quite stringent. Their underwriting hasn’t caught up and they are not able to look at the big picture of a business. That, combined with all of the risks and regulations, makes it really hard for banks to lend to small businesses. That is where alternative lenders like Kabbage come in. We focus on reach, how many small businesses have access to capital, instead of the total amount of money we lend out.
So, Even Though It’s Better Than Before, It’s Still Difficult For Small Business Owners To Get Financing?
Unfortunately, small business owners still struggle to get financing. So, what can you do to improve your chances? Annie Hudspeth recommends doing your homework first. You should also have a sound business plan, a resume, and proof of collateral. To show a potential lender that you are prepared, it’s also a great idea to complete your market research and create financial projections.
When Looking At Alternative Lenders, Interest Rates Are Not Always Competitive. How Does Kabbage Compare?
Kabbage interest rates vary based on the business’ financial history, but our rates are still very competitive. We offer between five and twenty-eight percent interest rates on a six-month line of credit. Riskier businesses tend to have higher interest rates. The more channels (business checking account, Square, PayPal, Intuit QuickBooks, Xero) that you connect, the better because it allows us to get a bigger and better picture of how your business operates, which could likely result in a lower interest rate.
How Do The SBA And Kabbage View Crowdfunding – Good or Bad?
The Small Business Administration thinks Crowdfunding is a terrific alternative financing option for small business owners. It can be used in ways that bank loans cannot be because there is no upfront cost to the business owner. It’s a great opportunity that many people who do not have access to working capital and will not be approved for small business loans should take advantage of.
Kabbage does not view crowdfunding platforms like Kickstarter and Indiegogo as competition because they tend to focus more on startups and new ventures, while Kabbage only lends to established businesses.
What Should a SBO Think About Doing Now To Get That Loan In 2015?
The Small Business Administration highly recommends visiting a SBA resource center to get all of the information that you need to prepare your business plan, strategy, and market research. We highly recommend it, too; after all, it’s free! SCORE also provides mentoring services as well as business advice and workshops that can help you understand how to run a small business better.
Ready to grow your business? Get in touch with one of our representatives today to discover how you can expand your business with the help of Kabbage!
Xero, The Small Business Administration, Kabbage, and Gene Marks educate small business owners on the most viable options for starting, funding, marketing, optimizing and streamlining their business. If you are in need of financing for your small business loan, don’t miss Xero’s Insomnia Busters Webinar Series!