In this podcast, SCORE mentors talk with Ty Kiisel of OnDeck about the changing world of small business financing.
The world of small business financing has changed quite a bit over the last few years. Ty, what's the difference between the way a small business owner gets a loan today and the way they did years ago?
I think the biggest difference is where they're able to get capital. In the old days, not too many years ago, the local bank was the partner for just about every small business. If you needed a couple of thousand dollars, you could go into the bank, sit across the desk from one of the loan officers, and because of your relationship with that particular bank, you could walk out with a few thousand dollars on your signature, but that isn't possible anymore. It's just a lot harder for small business owners to go into the bank and get a loan today than it used to be.
What are the best ways they do it (get a loan) today?
There are lots of ways. I don't know that there's one particular best way. I think that, depending upon what you're borrowing money for and how much money you need, there are a number of options that you can look to that will provide the capital that you require. For instance, some lenders specialize in loan amounts of below $50,000, whereas the bank wants to lend half a million dollars or more, and everything in between.
Do you think changes in financing have been beneficial to small businesses?
I think the world today provides enough options that it's actually pretty darn good for the small business owner. I say that with this particular caveat. In the old days, the bank was the one-stop-shop. If you needed money, you went in there and you would apply for a loan. It didn't require a lot of savvy on the part of the business owner; whereas today there are so many options that are so specialized that it requires the small business owner to be savvier about what he's looking for and why, so that he can make informed decisions about where to look and what type of financing is going to make sense for his business or her business.
In my experience, and I've had my share of loans over the years, I always use more than one bank. I developed at least two relationships so that I could play one off against the other. Is that still done today?
I think that for those businesses that have a really good personal credit score, a really strong business credit profile, and they've been in business for a few years, and they have those multiple relationships, they're in a position to do that. Most small business owners ... For example, the Federal Reserve Bank of New York came out last year and said the average small business owner spends 33 hours looking for a loan. The percentage of small business lending that banks are doing has been steadily declining for several years since ... I think the Federal Deposit Insurance Corporation identifies, since about the year 2000, the percentage of small business loans that are part of a total bank's loans are in decline.
There are fewer options like that available, but, fortunately, there are lots of technology companies that are leveraging technology for specific loan purposes to help small business owners, much the same way that companies like Amazon have changed the way we shop, Uber's changed the way we hail a cab, other technologies are changing the way we make hotel reservations and make airline reservations and all those kinds of things. It's not quite the same as it once was, but there are options that small business owners have that can help them.
For more, click play on the video above to listen to the full podcast, and download the transcript.