Say a four-person company applies for a loan from your bank. Should you give it to them? What are their prospects: dismal or bright? How about a would-be entrepreneur, with an idea that could soar—if she manages to secure the funding?
In today’s gig economy, it can be tough to even define what a small business is—much less set down rules for how to lend them money. That’s the dilemma facing many community banks and credit unions today.
For example, consider these stats:
- The number of self-employed people in the U.S. is expected to hit 42 million workers this year.
- A nationwide poll found that 1 in 5 U.S. jobs in America is held by contracted workers (1099s).
- Approximately half of the U.S. workforce freelances in some way.
As the 1099 population skyrockets, the lines separating business, freelancer, and contractor are blurring.
The shifting definition of a small business in the U.S.
According to the U.S. Small Business Administration (SBA), the parameters for a small to mid-sized business (SMB) vary by industry—and the span is huge. SMBs range from solopreneurs to companies with 1,500 employees.
Of course, size doesn’t necessarily make a business more profitable or creditworthy. But from a banker’s viewpoint, it’s simply easier to lend to companies that have achieved critical mass, since a CFO and full-fledged accounting department can readily furnish the documentation you need to sign off.
At the other end of the spectrum, entities with a few (or even a few hundred) often make lending a lot more complicated.
When time is of the essence
Let’s say your latest loan applicant is Morgan Getz. Morgan has been producing hand-crafted lighting fixtures for a decade. After a recent profile in a national home design magazine, Morgan has had more orders than he can handle. He can’t fulfill them without scaling up—and to scale, he needs capital to secure space, equipment, and employees.
What category would you put Morgan in? Entrepreneur? Business owner? Freelance artist?
Let’s add another real-world complication: as a small business owner, Morgan can’t afford full-time employees (yet). All these years, he’s contracted with a stable roster of local artisans and electricians—all 1099s. So although he is supported by a reliable team, on paper, he is flying solo.
Historically, lending to a small business like Morgan’s can turn into a headache for a loan officer. Despite clear potential, the business doesn’t check all of your boxes—not from the outset. Your loan officer may need to invest time performing research and chasing down paperwork.
And Morgan simply doesn’t have the time to wait. Time is of the essence: he needs to capitalize on his PR bonanza, today.
Does Morgan sound familiar? We suspect yes. Here are a few other circumstances that may call for immediate capital:
- A regional/national retailer contracts to sell a company’s product
- A competitor goes defunct and its customers are ripe for courting
- A business’s ads or social media have gone viral
- A business urgently needs to replace a piece of critical equipment
The definition of underwriting support and success
A loan decision is ultimately yours to make—but you never need to go it alone. LendingFront, an end-to-end digitized lending platform, helps lenders originate, underwrite, and service small business loans. With LendingFront, when opportunity presents itself, you can get through small business loan applications faster and more efficiently. And, with your team’s time suddenly free, you can devote yourself to your larger business customers .
What’s your definition of success? If it’s growing your bank’s or credit union’s assets, making profitable lending decisions, and helping local businesses obtain the small business loans they deserve, then we have your technology solution.Try a free demo of LendingFront today.