Does Small Business Lending Need a Crystal Ball or Innovation?

3 min read • Jan 24, 2012 • Shad Atkinson

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Is small business lending on the up and up?

The Thomson Reuters/PayNet Small Business Lending Index (SBLI) says it is. They claim small business lending is at its highest since February 2008.

“We are entering a new phase of the business cycle,” said PayNet founder Bill Phelan, as quoted by Reuters. “It (surge in borrowing) tells us there will be growth for at least the next quarter. There is underlying strength in the economy that is not being reported elsewhere.”

Related Whitepaper: 12 Best Ways to Get Business Financing in 2012

PayNet creates the SBLI by tracking new borrowing activity from millions of US businesses. And they get all their loan information from more than 200 lenders nationwide. Not bad.

Peeping into his lending crystal ball Phelan says, “We are now in this new phase of growth and low risk. The key question is how long is this phase going to last?”

How long is this phase going to last?

Or, has it even started?

Business lending is in a new phase of growth and low risk. If your like me, you’re probably not grabbing for your party hat and humming on your kazoo just yet. But is it cause to be hopeful?

Business Loan Innovation

For me, the hope is not for small business lending to just plain improve, and especially not through slow economic phasing. If lending is going to improve, I mean really improve, drastically improve, it needs to change first. It needs to evolve. It needs to adapt to the new economic environment, which means lenders and borrowers (yes you) need to rethink how they give and get business financing.

Look at crowdfunding and peer-to-peer funding and the new legislation that is trying to get that ball rolling. The legislation passed through the House in November. And if it gets through the Senate, it’ll allow new businesses to raise up to $5 million online, annually.

Related podcast on recent legislation about crowdfunding: Entrepreneur Addiction #16 — ‘Start, Grow, Plan, Exit’ with David Lavinsky

Now, there are all sorts of pros and cons to the legislation (for the arguments see, but the legislation, originally developed by a grass-roots group called Startup Exemption, marks the kind of rethinking America needs when it comes to small business financing.

America thrives on thought capital: invention, innovation and creativity. It’s what we need in a new President, someone who can reinvent, rethink and revive our economy.

Now, responding to Reuters in these terms, I think small business lending doesn’t need a clearer forecast or just better or earlier signs of improvement. Small business loans need innovation, the type of innovation that RocketHub, Prosper, LendingClub,, and are doing; the type of innovation that got us to the moon; the type of innovation of a new legislation, a new President, and a brand-spanking new way of looking at things. And to be frank, along those same lines, small business lending needs more of what Lendio is doing with matching business owners with the right types of financing.

Your Turn

What do you think? What does small business lending need today?

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Shad Atkinson