In the next few years, entrepreneurs may be celebrating more widely available business loans. Instead of selecting between only a handful of institutions, they’ll have hundreds of potential sources. Instead of being locked into a one-size-fits-all loan structure, they can customize their own financial products. And of course, the capital itself may become more abundant and freer to lend.
So what’s behind these trends? Why are business loans becoming more accessible?
Advantages and Incentives for Lenders
Business loans typically become more available when business lenders are more willing to provide those financial products. There are several advantages and incentives for lenders that are currently pushing those lenders to make their capital more accessible.
· Risk minimization technology. Data silos, security vulnerabilities, bad technical support, and other risk factors in the lending industry are all points of concern for traditional lenders. But thanks to new technology, minimizing loan origination risk is getting easier and easier. Banks can use a selection of data analytics tools, cybersecurity tools, and other inexpensive upgrades to better assess risk and feel more confident about lending – and making a reliable profit.
· Big data and predictive selling. Lenders are also taking advantage of big data and predictive intelligence. Now more than ever, businesses are focusing on collecting data related to their customers and prospects; gather enough data, and process it intelligently, and you can make relatively accurate predictions about almost anything. These days, lenders are making predictions about which business owners will need loans and when they’ll need them, proactively selling rather than waiting to be contacted.
· Blockchain-based lending. The blockchain is a powerful technology that’s responsible for making cryptocurrency secure, decentralized, and private. Increasingly, that technology is being harnessed and adopted by lending institutions.
· Personalization and custom loans. We are also seeing a rise in the customization potential for individual loans. Rather than offering a single, universal product, lending institutions are more flexible about the terms and conditions of the loans they provide. This allows entrepreneurs to get exactly the financial products they need.
Rising Rates of Entrepreneurship
Examining conditions for lenders is a way of looking at the “supply” side of this economic environment. But what about the “demand” side?
Rates of entrepreneurship have been steadily rising since 2000, and there’s reason to believe this trend will continue for the foreseeable future. Thanks to free website builders, free online content, and an abundance of similar resources, it’s easier than ever for people to start their own businesses. It’s also relatively easy to start an online business, selling exclusively to people over the web – and even these businesses typically need startup capital to gain momentum.
In an environment where more people are starting businesses and growing those businesses, demand will sharply increase. With rising demand, existing and prospective lenders will scramble to take advantage of this financial opportunity. In other words, it’s yet another motivation for lending institutions to issue loans.
Additional Factors to Consider
Additional factors to consider include:
· Digital processing and information verification. A couple of decades ago, the only way to get a business loan was to walk into a bank, fill out paperwork, and finalize the transaction over several more phone calls and paperwork signing events. These days, applying for a business loan and receiving that business loan (as well as eventually making payments on that loan) can all happen online. It’s increasingly convenient for both lenders and borrowers to make these transactions happen.
· Individual, private lending. We should also consider the rise of private lending. With the help of online platforms, it’s easier than ever for individuals to offer their own capital in exchange for ongoing repayments with interest. No longer do business owners have to exclusively rely on established institutions for their capital needs.
· Inflation and debt. Inflation favors borrowers – and we’re in the middle of a highly inflationary environment. As the money supply increases, the perceived value of money decreases, which means the value of the debt you hold also decreases; in other words, inflation has the power to reduce the true value of your debt.
Accordingly, savvy investors are looking for more opportunities to take on good debt – debt with an underlying purpose that presents a financial advantage. Because of this, more business owners may be looking to take out loans and invest in their businesses.
Of course, the flip side to this is that high rates of inflation often lead to higher Federal Reserve interest rates, which in turn leads to higher interest rates for business borrowers – and of course, higher interest rates for borrowers could taper demand.
It’s hard to make sweeping predictions about how economic conditions will change in the next several years, but based on what we currently know, it seems like the landscape for business borrowers is only going to get better. If you’re thinking about starting a business, or if you currently have a business and you need more capital to grow it, now could be the time to pull the trigger.