An increasing number of U.S. small-and mid-sized companies say they are turning to non-traditional lenders to satisfy their capital needs, according to a new survey from a Connecticut-based financial services consultant.
Of the 125 U.S. small-and mid-sized companies recently surveyed by Greenwich Associates, about a third said they obtained credit from non-banks and 90 percent of those businesses said they’ll look to tap non-bank providers for credit again in the future.
In addition, 60 percent of those businesses said the process of obtaining credit is easier through non-banks than it is through traditional lenders.
So what’s driving the increased demand?
“Companies are saying that non-banks have a simpler application process, require less documentation, and deliver much faster credit decisions,” said Greenwich Associates consultant Duncan Banfield.
Roughly a third of companies that obtained credit from non-banks said they did so at least in part because their traditional banks refused to lend.
That suggests they were unable to qualify for loans through traditional banking channels, the survey said.
But companies were also attracted to non-bank lenders by more attractive loan terms, conditions, rates and pricing. The survey also found that new bank regulations, including implementation of stricter capital reserve requirements, have made the loan application process much more complicated and cumbersome for banks and companies.
Banfield said new loan documentation requirements could contribute to a migration of loan activity from highly regulated banks to an emerging group of much more lightly regulated, non-bank providers.
