Infographic: The Rise of Marketplace Lenders

Caitlyn Rose
on January 12, 2016
Read in 2 min

Sooner or later, most small businesses will require an infusion of cash. The need might arise almost immediately during the start-up phase. Alternately, it could occur when an established company experiences growing pains.

Either way, your business will one day need to look beyond family and friends to get the capital you need. For many years, banks were the only financial institutions a small business could turn to.

But times are changing as the rise of marketplace lenders carves a new path for small business lending.

The Rise of Marketplace Lenders Inforgraphic - LendGenius

The State of Small Business Lending

In the wake of the US economic recession, large banks have stopped approving loans to small businesses. This was due in part to the effects of the economic downturn, but also due to tighter restrictions on creditors.

As a result, banks have reduced the number of small business loans they have awarded by a startling 20%.

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Simultaneously, consumers have been radically changing how they feel about banks and bankers. In fact, one poll indicated that seven out of 10 of young adults surveyed would rather go to the dentist than listen to bankers.

Half of those same people believe that new tech start-ups will irrevocably change the way banks conduct business. A sobering one-third of the individuals in the study believed they would never need the services of a bank at all.

This is a revolutionary change when you consider the esteem in which society has held its banks for hundreds of years. Regardless of these trends in modern banking, the reality is that companies still need infusions of cash.

Online lenders have gladly stepped up to meet the market demands. Instead of submitting to a grueling loan application process including extensive paperwork and pledging collateral, entrepreneurs can now complete a single online form. After a few clicks, they can be approved with the needed funds in a matter of days.

Even cash advances, which have a well-deserved reputation of being costly in the long run, have become popular online as a solid way for businesses to obtain the fast cash they need.

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How Marketplace Lenders Are Funding Small Businesses

Marketplace lending is fast becoming the go-to source for the small business financing. With marketplace lending, entrepreneurs needing a loan are matched with lenders on an online platform.

Funds can be dispersed in a matter of days, and interest rates can be lower than those found at banks. Instead of just originating from one bank or other financial institution, marketplace loans may come from a group of several individual and corporate investors.

This setup leads to several advantages that small business owners can enjoy. Marketplace lenders have deep pockets, backed by billions of dollars in venture capital. These lenders are looking for innovative, forward-thinking companies that can help translate their investment into big profits.

As with other online loan types, marketplace lending gives potential borrowers fast answers and quick cash, which can be a boon for entrepreneurs needing to enhance their inventory, upgrade equipment or make necessary repairs. Best of all, marketplace lenders are eager to loan capital to qualifying companies; this is, after all, how they hope to make more money themselves.

Untapped Funding Opportunities

Surprisingly, many entrepreneurs seem to be unaware of the opportunities available through marketplace lending. Only 18 percent of those looking for small business loans sought online opportunities during the first half of 2014.

Because of the difficulties inherent in getting loans from traditional lending institutions, this trend is sure to reverse itself as the rise of marketplace lending continues.

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Marketplace lending represents a rich gold mine of funds that entrepreneurs are just beginning to recognize.

Although that might sound like a great deal of money, it represents only a paltry 3.3 percent of the total amount of small business loans approved in America. Even so, this number indicates a 68-percent jump since 2014.

By 2020, experts expect that marketplace lenders will be providing a full 16 percent of loans to small businesses. Just as e-commerce is becoming an indispensable part of many companies’ operations, marketplace lending is also harnessing the power of the Internet for the betterment of the small business financial future.

These days, both e-commerce and online lending have begun to shake off their former shadowy reputations. Today, businesses of all sizes have come to view online lenders as viable options. With large banks shying away from this lucrative market, the future looks quite bright for marketplace lending.

Caitlyn Rose LendGenius Staff

Caitlyn is a small business consultant and editor for LendGenius with an intimate understanding of business finance.

She’s an entrepreneur at heart & supports local businesses whenever she can.

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