January's Government Shutdown Is Still Affecting Small Business Lending

Thanks to a stop-gap funding measure passed in the final week of January, the U.S. government is, for the time being, fully operational.

More precisely, the U.S. government is operating to the best of its ability under a five-week backlog of  work, as well as the threat of another shutdown midway through February should Congress and President Trump remain in dispute over a full funding bill.

Under these uncertain circumstances, those who are waiting on or plan to apply for critically needed government grants or SBA loans might be in for a potentially ruinous few months. That is, unless they can seek out alternative financing solutions.

The Business Of America Is...Delayed

This is a particularly challenging prospect for business owners seeking Small Business Administration loans, financing that often represents a life-or-death prospect for independently owned and operated small to medium-sized businesses (SMBs).

The SBA issues loans to roughly 300 SMBs a day, with the size of the loans ranging anywhere from $500 to $5.5 million. With the government shutdown lasting 35 days, that means roughly 10,000 SBA loan applications that would have been approved during that span are still being assessed while hundreds of thousands more await initial evaluation.

The potential several-month delay that this backlog promises to cause new applicants is even more dire since SBA loans are typically pursued, often perforce, by companies that have exhausted traditional financing options from national and regional banks. These are companies that traditional banks typically will not lend to, whether due to suboptimal credit history, unsystematic industry risks, or simply because the requested financing amount isn’t profitable enough to their loan portfolios.

After finding themselves turned down by traditional financial institutions, SMB owners understandably view SBA loans as their last option to secure financing.

Fintech Fills The Gap

However, an increasing number of SMBs are taking advantage of alternatives to either traditional financial institutions or Uncle Sam. Fintech companies that specialize in small business financing, like Credibly, are rapidly proving to be an essential private sector solution to an expanding public sector crisis.

In fact, in a survey of previous clients, Credibly found that a vast majority of companies it provided financing to (62.5 percent) did not seek out a loan from a traditional financial institution prior to applying with Credibly. Many of those surveyed cited more appealing terms with Credibly, although the smaller financing options were also a prime motivating factor since banks often refuse to consider SMB loan amounts less than $50,000.

What this trend suggests, and what seems to be playing out in the current lending imbroglio, is that Credibly and other fintechs focused on SMB financing are an increasingly necessary option for those businesses stuck in the gap between private and governmental lending options. What’s more, either option typically lacks terms that favor business owners seeking short-term financing below most banks’ $50,000 floor.

Although the federal government has wobbled back to its feet and dedicated manpower to clearing the SBA’s and other administration’s backlogs, the shutdown sheds a stark light on just where both public institutions and private banks fall short. While fintechs have gained momentum in broadening lending and cash flow throughout the economy, that’s little comfort to those still waiting on the wheels of bureaucracy to get back up to speed.

Credibly is a content partner of Benzinga