Top 5 Business Loans Trends in 2021: What You Need to Know
Running a business often requires you to seek external funding at some point. Whether it’s to cover unexpected expenses, finance growth, or streamline operations, there’s always a business loan that can help you achieve your goals. However, with so many options available in the market, choosing the right loan product can be overwhelming. Here are the top five business loan trends that will shape 2021.
1. Alternative Lending is on the Rise
Traditional banks have been the go-to option for business loans for decades. However, many businesses struggle to secure a loan due to stringent requirements like personal guarantees, collateral, and a good credit score. As a result, alternative lenders, including online and peer-to-peer platforms, have emerged as popular sources of funding. These platforms use technology to process loan applications quickly and offer flexible terms, making them ideal for small businesses. In 2021, we can expect more businesses to opt for alternative lending.
2. Digital Transformation is Changing the Game
The COVID-19 pandemic has accelerated the adoption of digital technologies across all industries. Businesses that weathered the storm successfully had already laid the groundwork for digital transformation. Digital transformation is more than just automating processes. It also involves leveraging data to make smarter business decisions. Companies that have this capability are more likely to get approved for loans as lenders trust their data to paint an accurate picture of their financial health. In 2021, we can expect digital transformation to be a significant factor in loan approvals.
3. ESG Investing is Gaining Momentum
Environmental, social, and governance (ESG) investing has been gaining popularity in recent years. These investments consider companies’ performance on environmental and social issues and their governance structure. Banks are also taking ESG factors into account when lending to businesses. Companies that prioritize sustainability and social responsibility are more attractive to lenders. In 2021, the pressure to embrace ESG principles will only increase, and businesses that fail to do so may find it harder to secure financing.
4. Government-Backed Loans are Becoming More Accessible
Governments are collaborating with lenders to provide affordable loans to businesses affected by the pandemic. These loans often come with favorable terms like low interest rates, extended repayment periods, and no collateral requirements. In 2021, businesses that continue to struggle due to the pandemic can take advantage of these loans to stay afloat.
5. Fintechs are Disrupting the Market
Fintechs are companies that use technology to provide financial services like loans, payments, and investments. They are disrupting the traditional banking sector by offering innovative products that cater to specific niches. For instance, fintechs can provide loans based on social media data or invoices. In 2021, we can expect more fintechs to enter the market, offering specialized loan products that meet unique business needs.
Conclusion
2021 promises to be an exciting year for business loans. Alternative lending will continue to disrupt the market, and digital transformation will be critical in securing loans. ESG principles will be essential, and government-backed loans will be more accessible. Lastly, fintechs will continue to offer innovative products that cater to specific niches. As a business owner, keeping up with these trends will help you choose the right loan product that suits your needs and ensures your success.
