Not All SME Loans Are Created Equal


A small business loan by any other name — would it still suit the borrower? Not necessarily. There are several different types of loans a small business owner could pursue when in need of financing, from a traditional SME loan from a bank, to a merchant cash advance, short-term financing, invoice factoring and beyond.

For the small business owner, it gets confusing — and that’s if he or she is even aware of all of the options in the first place.

According to Julia Rivers, manager at online marketplace lending platform Personal Money Service, awareness among SME owners is lacking.

When asked how educated the site’s SME clients are when it comes to the types of loans they have access to, Rivers stated, “not really.” She assessed search terms on the site and found “small business loans” and “small business loan calculator” are the most frequently searched.

“Basically, people know that they run a small business, and they want to figure their monthly payments,” she said. “Entrepreneurs very rarely search for ‘retail business loans,’ for example.”

Understanding whether a small business knows all of the options out there is key for Personal Money Service. The company has just launched a suite of new small business loan products, adding revolving lines of credit, working capital financing, retail business loans, unsecured business loans and business term loans into its offerings.

Still, the small business loan is the site’s most popular loan sought after by entrepreneurs, Rivers noted.

“In 100 percent of submitted applications, 90 percent make the right choice about the type of financing they’ve applied for,” the executive said, adding that it’s up to the lenders that participate on the site to guide the borrower to another loan product if the one they’ve applied for isn’t the right fit.

The best source of education, according to Rivers, is to clarify and describe what each product is that SMEs can access through the portal.

“We want to make sure a customer has a clear understanding of each type of business loan,” she noted.

With a new presidential administration ahead and continuing economic changes, small businesses will need to be vigilant about their cash flow and about what they need to strengthen their finances. The options that alternative, online lending marketplaces can offer small business owners are also changing the game, Rivers said, by placing pressure on traditional banks.

“Banks can’t stand the competition because of flexible terms online lenders can offer,” she said. “Plus, don’t forget that online lenders use technology that makes the application and funding process very fast and user-friendly.”

Alternative lenders do come with higher fees, she admitted, but if a company’s top priority is accessing financing as quickly as possible, then an online lender comes out on top (though, the executive added, collaboration between alternative and traditional lenders is certainly offering a “win-win” for borrowers and lenders alike).

Ensuring a business is successful is about more than simply having choice when choosing a business loan and accessing financing faster. With the new year ahead, there are a few obvious trends.

One, she said, is that “the competition is crazy.” Another is that many businesses continue to operate offline-only. “To follow modern trends and fight for their audience, they must go online as well,” she warned.

The potential impact of President-Elect Trump on the small business climate may also force company owners to grow or adapt in new ways. All of this means businesses will be seeking financing. Rivers said understanding the choice will ensure companies have the best chance at surviving and thriving.

“We all know the term ‘small business loan,’ but very few know that there’s a great variety of loans for small businesses,” she said. “People deserve to know that they do not necessarily have to apply for a small business loan.”