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BY ROHIT ARORA
COMMENTARY
Supporting small business was among the top economic stories of the year, and the rise in lending to those growing companies was the most important development in 2011.
It's a story we saw developing since the credit crunch tightened the spigots on funding for small businesses. When the big banks said no, small banks and non-bank lenders increasingly said yes. Over the course of 2011, big banks rejected loan applications about 90 percent of the time. Smaller banks approved nearly half of small business funding requests, while alternative lenders granted approvals more often than not.
Many people ask me, "Who are the alternative lenders?" They are comprised of credit unions, CDFIs, micro lenders and accounts receivable financers.
Credit Unions
A credit union is a cooperative, not-for-profit financial institution owned and controlled by its members. Credit unions are established and operated for the purpose of promoting thrift and providing credit at competitive rates and other financial services to their membership. They are locally focused and lend at reasonable rates, which accounts for their tremendous growth in small business lending in 2011. Credit unions are becoming more aggressive in soliciting deposits and are seeking to raise the 12.5 percent cap to 27.5 percent on small business lending set by the government. The National Association of Federal Credit Unions (NAFCU) provides a list of its members online.
Community Development Financial Institutions (CDFI)
Community Development Financial Institutions are financing entities that have a primary mission of community development. Established by the Reigle Community Development and Regulatory Improvement Act of 1994, CDFIs are certified by the Treasury Department, which provides funds to them through a variety of programs. Biz2Credit has helped numerous small business owners in New York to get funding from the New York Business Development Corporation (NYBDC). The organization helps provide term loans to small businesses that sometimes are unable to meet the requirements for traditional financing. In many cases the financing incorporates multiple participations, SBA guarantees, flexible amortization and long-term payouts.
NYBDC also manages the Empire State Certified Development Corporation ("The 504 Company"), which is licensed by the Small Business Administration (SBA) to provide SBA 504 Loans that are designed to stimulate economic development and spur job creation for eligible New York State businesses.
