Los Angeles is a city of large, medium-sized and small businesses. It is also abuzz with entrepreneurs. The 2015 Pepperdine report shows that more than six in ten mid-sized LA companies are rejected by banks and are looking for alternate means of funding. The Biz2Credit Small Business Lending Index report and the Misys survey indicated that both mid-sized and small companies, in and out of California, are considering alternative hard money loans as an option. These type of loans are faster, more convenient, and more flexible than the typical bank loans. For commercial hard money lenders, this means more business. They have the banks to thank.
The 2015 Dunn & Pepperdine report
In December 2015, (Dunn & Bradshaw) Pepperdine University’s Private Capital Access found that more small businesses than ever were able to access bank capital. The report had surveyed L.A. businesses with less than $5 million in revenue (small) as well as mid-sized companies that owned $5-100 million. The Pepperdine survey actually found a 5% increase in successful small business bank loan financing (with 35% financing success rate for Q4). The banks, it seems, becoming more open to financing small businesses, although more than triple of entrepreneurs, startups, and small businesses in Los Angeles that had applied were turned away.
It was the mid-sized business that, for some perplexing reasons, were less able to land these bank loans. The Pepperdine report noted that in 2015, these entities experienced decreases in both their demand for capital (a minus 3.8% change since Q3) and bank loan access (73% success rate, a 17% decrease since Q3). For some surprising reason too, mid-sized business in Los Angeles also saw decreased demand for their services and products this past year. Sandwiched between the larger corporations and the newer but more exciting and innovative startups, mid-sized companies have had it hard.
The Biz2Credit Small Business Lending Index report
The Biz2Credit Small Business Lending Index, the monthly analysis of 1,000 loan applications from Biz2Credit.com, came up with different results. It found that ever more small business owners than in recent years were approaching banks for funds and that institutional lenders and banks – particularly the larger ones – were financing more of their applications. BizzCredit found that banks granted 22.5% of small business loan requests. This was a post-recession high for the Index. Small banks and credit unions, the Biz2Credit Index found, trailed in the digitization process this past year and subsequently processed far fewer loans.
Takeaway for commercial hard money lenders: The Pepperdine report states that 22.5% of small businesses are granted their loans. That gives us a remaining 77.5% who are shunned. What this means is that more than three times the amount of those who are accepted are turned away! Where else can these companies go but to commercial hard money lenders. Add to that the fact that mid-sized businesses are, also, rejected by the banks and you have an exciting situation for hard money lenders. Once again thanks to the banks, small and mid-sized businesses are actively looking for loans.
The Misys survey
Early October 2015, Misys, a financial software company conducted its own worldwide survey. Results showed that nearly one quarter of their international and national respondents (24%) – which consisted of small and mid-sized companies – are now financing their working capital needs through a combination of traditional banks and non-bank alternatives.
More than six-in-ten respondents 62% cited poor automation as a barrier to accessing bank financing.
Misys surveyed both small and mid-sized companies and found that owners of both were increasingly looking to commercial hard money lenders for their funds. Reported Misys in their press release:
As small business owners look to technology to streamline processes and make their companies more efficient in the 21st century, increasing numbers of them look to conduct transactions – including loan applications – on tablets and smartphones, rather than desktop computers.
The short of it is this: Fewer and fewer owners of both mid-sized and small companies are willing to take the time and go from bank to bank in search of funding. Banks closed doors to potential borrowers in the post-recession “Credit Crunch.” Private money lenders – otherwise known as commercial hard money lenders – took advantage. They slammed the door open for shunned borrowers and offered faster approval, greater convenience, and more flexible terms. Businesses need and love this.
In conclusion, all three reports show that a gagging percentage of both mid-sized and small companies are turned away from the banks when they approach them for loans. All three reports also show that all over California, all types of businesses are increasingly turning to alternate sources for their funding. Hard money lending has become a viable option.
For commercial hard money lenders the future could not sound better!