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In the dynamic landscape of entrepreneurship, access to capital remains a critical factor for the growth and sustainability of small businesses. While traditional banks have long been considered the go-to source for business loans, an increasing number of entrepreneurs are turning to private lenders to fulfill their financial needs. The question arises: Why are private lenders more willing than banks to loan to small businesses? In this blog, we’ll explore the factors that make private lenders a more attractive option for the daring souls driving the engines of innovation and economic growth. Plus, we’ll examine some ways in which AXIS by AIO Logic can help private lenders automate and optimize their small business lending operations!

1. Flexibility in Decision-Making

One of the key advantages that private lenders hold over traditional banks is their agility and flexibility in decision-making. Banks, constrained by rigid policies, extensive bureaucracy, and stringent regulations, often find it challenging to adapt to the unique circumstances of small businesses. Private lenders, on the other hand, are more nimble in assessing risk and customizing loan terms to suit the specific needs of the borrower. This flexibility allows for a more personalized approach, fostering a collaborative relationship between lender and borrower.

For private lenders seeking to provide customized loan terms, AXIS by AIO Logic can play a crucial role in assisting them to do so. With native handling for every commercial loan type, AXIS allows lenders to offer whatever type of loan that suits the borrower’s needs. Additionally, AXIS has full functionality for fixed and variable rate loans with automated application of interest rate indexes including Prime, 1M Libor, 3M Libor, 3M Term SOFR, and SOFR. In short, AXIS allows lenders to offer whatever loan terms a borrower needs and makes set-up easy with processes specific to the selected loan type.

2. Speed of Approval

Time is of the essence for small businesses seeking funding to seize growth opportunities or weather financial storms. Banks, bound by complex approval processes and numerous layers of red tape, can take weeks or even months to approve a loan application. Private lenders, unburdened by the same bureaucratic constraints, boast significantly shorter turnaround times. The expedited approval process of private lenders is a game-changer for small businesses requiring swift access to capital, ensuring they can capitalize on time-sensitive opportunities and navigate challenges without unnecessary delays.

As a true end-to-end platform with automation built into every stage of the loan lifecycle, AXIS by AIO Logic can help private lenders enhance the speed of the origination process even further. Right from the beginning, when a new deal is created in AXIS, deal stages and an initial document request list is automatically created. When proposed terms are entered into the deal record, AXIS automatically generates a completed term sheet on the organization’s form. Additionally, approval memos are also automatically created with AXIS pulling and centralizing data from different sources into a single, formatted memo. These features, along with several others, significantly increase efficiency in the origination process, allowing borrowers quicker access to capital.

3. Relationship-Oriented Approach

Private lenders often prioritize building relationships with their clients. Unlike banks that may treat loan applications as transactions, private lenders view their involvement as a partnership. This relationship-oriented approach fosters trust and transparency, enabling lenders to better understand the business’s unique challenges and goals. By forging a deeper connection, private lenders can tailor their financial solutions to meet the specific needs of the small business, thereby increasing the likelihood of success for both parties.

As mentioned earlier in this blog, AXIS by AIO Logic makes it easy for lenders to customize loan terms to the needs of a specific borrower. However, this is not the only functionality in AXIS that helps foster strong relationships between lender and borrower. As part of the CRM functionality in AXIS, lenders can set automated follow-up reminders to ensure consistent, ongoing communication between the two parties. Additionally, the Discussions functionality in AXIS provides ongoing conversations to be centralized until a resolution is achieved.

4. Diverse Risk Appetite

Traditional banks, driven by risk-averse practices and regulatory pressures, tend to shy away from lending to businesses perceived as higher risk. Private lenders, however, often have a more diverse risk appetite and a willingness to take calculated risks. This is particularly beneficial for startups and businesses in niche industries that may face difficulty in securing loans from conventional banking institutions. Private lenders are better positioned to assess the potential for success beyond traditional metrics, acknowledging the innovative spirit that drives many small businesses.

With the financial spreading and analytics tools in AXIS by AIO Logic, lenders have a very powerful tool to assist them in assessing the financial health of a borrower. Once financials are spread into AXIS, the platform automatically performs vertical, horizontal, and trend analysis in order to calculate 42 financial ratios and score borrower financial health. This powerful analysis ensures that lenders have the data necessary to make informed investment decisions.

5. Asset-Based Lending

Private lenders frequently employ asset-based lending, a financing strategy that considers a borrower’s assets as collateral for the loan. This approach allows small businesses with valuable assets, such as equipment, inventory, or accounts receivable, to secure funding even if they lack an extensive credit history. Banks, on the other hand, might place a heavier emphasis on credit scores and financial history, potentially excluding many small businesses with untapped potential.

When building AXIS by AIO Logic, we recognized the importance of asset-based financing to private lenders. That’s why we’ve included an entire section of AXIS dedicated specifically to asset-based lending. Among the many features related to asset-based lending, AXIS allows lenders to enter custom borrowing bases, add account debtors, and add collateral such as equipment, inventory, and real estate. Additionally, AXIS has functionality that allows for non-tangible assets such as intellectual property, data, and more to be added as loan collateral.

Conclusion

In conclusion, the preference for private lenders over banks in the realm of small business loans is rooted in their adaptability, efficiency, relationship-focused approach, diverse risk appetite, and asset-based lending strategies. While banks play a crucial role in the financial ecosystem, the evolving needs of small businesses are finding better matches in the dynamic and responsive world of private lending. As the entrepreneurial landscape continues to shift, the symbiotic relationship between private lenders and small businesses will likely flourish, unlocking new opportunities for growth and innovation. If your firm is seeking to automate and optimize your small business lending operations, feel free to contact us today to schedule an intro call and learn more about AXIS by AIO Logic.