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Business owners may possess the knowledge and confidence to prosper, but lack sufficient capital and/or the collateral most banks require to secure a loan. Non-bank lenders can often provide a viable alternative to getting a small business loan through a bank or conventional lending institution.
The U.S. Small Business Administration, which has more than $10 billion in annual loan volume, has licensed non-bank lenders as Small Business Lending Companies with the authority to make SBA-guaranteed loans since the 1970s. These companies, located across the company, have helped account for the increase in SBA loans. Nearly 25 percent of SBA loans are made through non-bank lenders.
Some banks and non-bank lenders are further classified as Preferred Lenders.
The purpose of a SBA loan is to provide funds to small business when conventional terms are not available. The SBA guarantee represents a credit enhancement designed to motivate a lender to originate a loan it would not otherwise make. For example, most conventional lenders shy away from specialty types of financing requests (restaurants, hotels,...