Small businesses are the backbone of the US economy. Small businesses — businesses with less than 500 employees — represent 99% of US companies, 54% of total sales, and 55% of all jobs, according to the US Small Business Administration. And these businesses need capital in order to grow.
But small businesses are underfunded — only half of small businesses with $100,000 to $1 million of annual revenue received at least some of the financing they applied for from large banks in late 2015. This is partially because banks have retreated from this segment because issuing loans to small businesses using the traditional underwriting model is expensive. This leaves a massive amount of unfulfilled loans that we estimate reached $96.5 billion in Q4 2015.
Alternative lending companies have stepped in to capitalize on the opportunity available in helping meet more small business' lending needs. Alternative small business lending platforms use machine learning and digital tools to extend credit to a wide array of small businesses quickly and efficiently, particularly to those that have been rejected by banks. Alternative small business lending companies provide digital platforms that connect small business borrowers to capital using nontraditional means.
We estimate that alternative small business lenders originated $5 billion and had a 4.3% share of the small business lending market in the US in 2015. But alternative small business lending platforms will originate $52 billion and gain a 20.7% share of the total market by 2020, driven by the continued growth of new players, increased borrower awareness and interest, and most importantly, major partnerships with big banks.
In BI Intelligence's 2016 Small Business Alternative Lending Report, we analyze the market opportunity for alternative lenders, forecast the market share and volume growth of alternative lending platforms, profile key players, and address the main industry risks.
Here are some key takeaways from the report:
- Alternative lending platforms are in a position to capitalize on this underfunding and also take share from banks. These companies use machine learning and digital tools to extend credit to a wide array of small businesses quickly and efficiently. We estimate that alternative lending companies' share of the small business lending market in the US will reach 20.7% by 2020.
- Alternative lenders are now partnering with banks and this will propel growth going forward. New lenders are finding opportunities to offer white-label services to major banks. We expect banking partnerships, like the one between JPMorgan and OnDeck, to add 7.7 percentage points to the alternative lending industry's market share by 2020.
- A flurry of new lenders have entered the market, but it's still early innings. A handful of small business lenders, from Funding Circle to Credibly, have entered the market and this is creating challenges as customer acquisition costs rise and alternative lending companies struggle to differentiate themselves.
In full, the report:
- Forecasts the market share and volume growth of the small business alternative lending sector, and breaks down the main growth drivers.
- Explains why small businesses are underfunded, and quantifies the market opportunity for alternative lenders.
- Defines the different types of platforms that alternative lenders employ, including their revenue models.
- Lists the advantages and disadvantages that alternative lenders have compared to traditional players.
- Overviews the key players in the industry and identifies their growth factors as well as the pain points limiting their growth.
- Pinpoints the key risks that could undermine the success of alternative platforms.
Companies mentioned in the report include: OnDeck, JPMorgan Chase, Lending Club, Lendio, Bizfi, Funding Circle, CAN Capital, Kabbage, Credibly, Square, PayPal, SunTrust, Wells Fargo, Barclays, UBS.
Interested in getting the full report? Here are two ways to access it:
- Subscribe to an All-Access pass to BI Intelligence and gain immediate access to this report and over 100 other expertly researched reports. As an added bonus, you'll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >>Learn More Now
- Purchase & download the full report from our research store. >> Purchase & Download Now
PS. Did you know...
Our BI Intelligence INSIDER Newsletters are currently read by thousands of business professionals first thing every morning. Fortune 1000 companies, startups, digital agencies, investment firms, and media conglomerates rely on these newsletters to keep atop the key trends shaping their digital landscape — whether it is mobile, digital media, e-commerce, payments, or the Internet of Things.
Our subscribers consider the INSIDER Newsletters a "daily must-read industry snapshot" and "the edge needed to succeed personally and professionally" — just to pick a few highlights from our recent customer survey.
With our full money-back guarantee, we make it easy to find out for yourself how valuable the daily insights are for your business and career. Click this link to learn all about the INSIDER Newsletters today.
Join the conversation about this story »