2 . In the recent past, small business lenders (for example \'biz2credit\', \'ka

Question

2 . In the recent past, small business lenders (for example 'biz2credit', 'kabbage', 'CANCapital', and 'LendingClub') have become popular. Their major function is to provide loans to small businesses to carry on the day-to-day business operations. You may not need to do research in order to answer the following questions. But most definitely you would have to use your analytical mind and make connections to the material learned in the class.

a) Why are these lenders important to the financial system? Include the competition from the financial institutions (such as commercial banks, shadow banks) discussed in the class.

b) What do you think about the long run sustainability of these lenders? Think about what does it take to survive as lenders and what may be major hurdles for their survival.

Explanation / Answer

(a)

The lenders are important to the financial system because they help the business undertaking to take short term loans and provide capital funds to such firms for a time period. It helps them to pay the interest as a lumpsum and complete theri loan soon. The commercial banks do provide long term and short term loans but the formalitites undertaken by banks is difficult. It is not seen in case of private lenders. They do not keep a critical procedure to apply for loans for the firms to do business.

(b)

The long run sustainibility of these lenders is to earn revenues from more number of customers going for loan by them. It helps to increase revenues on a long term basisi due to high demand in the business world. The lenders are usually taking loans on a large amount for a short time period or may go for a long time period as per their convenience. The service offered by these lenders is more comfortable than shadow or commercial banks. The major hurdle for the lenders could be earning revenues in a competitive market and become loan free and financially independent.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.