Online alternative lenders are gaining momentum with U.S. small businesses, specifically and unsurprisingly with those run by millennials, according to a new report by Mercator Advisory Group.
According to Mercator’s report, Business Banking Services: Keeping Up with Millennial Owners, 27% of total U.S. SMEs have used online alternative lenders (P2P lenders or marketplace lending platforms) in 2017.
Of this number, 48% of millennial owners (aged 18–34), currently have a loan from an alternative lender compared to 25% of SMEs run by owners over 35 years of age. Further, these millennial owners said they are twice as likely to use alternative lenders than their older counterparts.
The survey, however, doesn’t specify how many of the 1,638 SMES it surveyed are millennial owners.
Why are some SMEs opting for alternative lenders? Mainly because the loan approval process with an online alternative lender is easier and the funds arrive faster than the traditional route, the survey said. However, only 7% cited better interest rates as the reason they prefer alternative lenders.
Karen Augustine, author of the report and Mercator Advisory senior manager of primary data services said in a Friday statement:
Small businesses need loans to run their businesses as they are often constrained by cash flow management challenges. They need access to credit wherever they can get it and will look outside of their banks for it. They are more likely to borrow on credit cards and to use personal accounts, and they often need to delay routine purchases due to cash flow constraints. Ease of loan application and faster funding are of critical importance.
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