Small business funding in focus

26 Dec, 2013 | Articles

Coming into the end of 2013 and the US is stepping up its focus on getting small business credit moving. The US House of Representatives Subcommittee on Economic Growth is taking testimony from industry. Earlier this month Renaud Laplanche, CEO of Lending Club gave testimony. The basic message? Small businesses in the US have little access to credit and the problem is getting worse. At the same time the “charge off rates” (loss rates) on small business loans are improving and are much better than personal credit cards! Why, then arent the banks jumping head first into business lending then? According to Laplanche the issue is the high cost of underwriting small business loans – banks find it difficult to assess the credit profile of an individual small business and therefore prefer to focus on other market segments where the application pool is more homogenous and the credit metrics are easier to assess.

In the meantime, the small business owner suffers – with the only source of capital often being non traditional lenders that can charge very high rates of interest and fees