Market conditions and social trends impact your small business on several fronts. And forces are always at work, altering the situations and circumstances surrounding your for-profit endeavor. Failing to recognize the changing tides of commerce and adapt your approach to an ever-evolving business environment can leave you a step behind your competitors. The pace of change has only accelerated in recent years, so successful entrepreneurs are adept, keeping up with the times.
A few of the shifts presently impacting commercial ventures include movement in the lending industry, calls for better data protection and privacy, and heightened focus on social responsibility.
Generating capital is a primary concern for ventures of all sizes, but small businesses are unique, in that their sales histories aren’t always robust enough to secure traditional financing offers from big banks. The limitation presents obstacles, at times, interfering with small business owners plans for growth and expansion. Alternative lending presents options for entrepreneurs, when conventional financing isn’t available, or doesn’t adequately serve a particular funding need.
The commercial lending industry has evolved in recent years, opening the door to alternative types of financing. In fact, 2018 was a breakout year for non-conventional funding, propelling complementary finance options into a position of prominence with business borrowers.
Analysis reported a few years ago estimated that up to 80 percent of business loan applications were rejected. And among those that received a green light from lenders, many business owners reported being approved for amounts less than they had requested.
As recently as November, 2017, it was thought close to 40 percent of small business operators were wholly unfamiliar with alternative financing – never heard of it, according to one report. But borrowing trends shifted dramatically in 2018. Faced with obstacles and limitations from traditional lending sources, small businesses turned to marketplace lenders in increasing numbers. While their motivations are as unique as their businesses, entrepreneurs seek alternative lending sources for reasons such as these:
- The flow of capital from big banks to small businesses has slowed. The financial meltdown in 2008 put the brakes on small business lending, which never fully recovered. As a result, alternative lenders have filled the void, funding small business loans valued under $1 million, which had experienced declining numbers since the 2008 crisis.
- Non-conventional lenders offer greater flexibility. Big bank regulation doesn’t always apply to marketplace lending, so alternative lenders have more flexibility devising custom financing plans.
- Alternative lenders present affordable repayment options. Cash flow cycles vary among small businesses, so revenue isn’t always evenly distributed throughout the year. Banks can’t always accommodate the uneven flow, so marketplace lenders have stepped in with workable options. In some cases, repayment can be directly tied to sales, allowing small business entrepreneurs to pace their payments, without placing undo pressure on operating capital.
- Small business borrowers get faster access to cash. Approval and funding from big banks can take months. Non-traditional lenders streamline the process, so qualified borrowers enjoy fast access to the cash they need – sometimes receiving funds within days of completing an approved application.
Consumer awareness and concern over data practices is more pronounced today, than ever before. And for good reason, a spate of breaches and other data irregularities have naturally made consumers more protective of their personal information. As a result of the increasingly volatile environment, small business owners are expected to rise to the challenge, preserving and guarding their customers’ data, and to provide timely notification when problems arise.
On the heels of an EU data privacy initiative launched last May, several US states have also passed legislation reinforcing privacy and notification rules. Greater transparency and returning more data control to consumers is the goal of the new laws, which vary by state. Among the most assertive of the new regulations, California and Vermont’s laws go a step further than other states’, calling upon businesses to substantially overhaul their data protection practices and processes.
Corporate social responsibility isn’t a new issue; many top firms have embraced the concept for years. From fair labor practices to safe working conditions, companies such as outdoor products manufacturer, Patagonia, are elevating corporate social responsibility to new heights. The global outfitter maintains high standards, taking across-the-board responsibility for the impacts of its commercial activities on community, environment, employees, and customers. Modeling a similar philosophy is no longer optional for progressive entrepreneurs.
Committing to socially responsible practices puts you in the fast line, keeping up with societal change and consumers’ call for greater transparency and commercial accountability. Forward-looking businesses are positioned for gains in these areas:
- Fair labor practices
- Safe production facilities
- Humane working conditions
- Low environmental impact
- Positive social impacts across the supply chain
- Protecting workers from exploitation
- Ethical sourcing
- Utilizing local resources
As you attend to matters internally, outside forces continually shape commercial conditions, impacting your small business. You can’t afford to fall off the pace, so responding to marketplace shifts is a top priority. The rising demand for alternative lending, data protection, and social responsibility are significant developments. Acknowledging these market shifts and adapting your approach can help keep your small business aligned with the times.
The Sprout Funding blog offers tips, reports, insights and other ideas to help small business owners learn and grow. Have a question for our team? Email us at: firstname.lastname@example.org, and tell us how we can help you.
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