It’s funny how the market works: If an area isn’t functioning that well, someone will find a way to come up with a solution. It might be more expensive than the original service, but it beats the alternative (which is that the good doesn’t exist at all).

Here is a good example of that: Faced with banks with much tighter lending standards, entrepreuneurs are turning to other sources of lending to operate their business. Here is an interesting article in BusinessWeek (thanks to Carrie Conko for the tip) about how asset-based lenders, factors, and merchant cash providers are filling the gap left by traditional commercial banks.

Enter the alternative finance companies. They include asset-based lenders (which make secured loans for purchases of equipment or inventory), factors (which buy unpaid invoices at a discount), and merchant cash advance providers (which pay up front for the right to collect a share of a retailer’s future credit-card sales). These sources of funds generally cost more, sometimes much more, than bank credit. But businesses that survived the recession will need to buy inventory and equipment, expand operations, and hire workers during a recovery—and they are finding few other options to fund their growth.

It has good data such as “58 million cardholders had their limits reduced between April 2008 and April 2009, according to FICO (FICO),” and a link to a Fed survey of senior loan officers.

The whole thing is here.