People usually are under the impression that securing a loan from a bank involves walking into a bank, answering the few questions asked, and signing some paperwork. In reality, it is actually a lot more complicated than that. Securing a loan from a bank involves a lot of stress, documents and time, all of which can end up being for nothing as the bank reserves the right to turn down your loan request. In actual fact, every 4 out of 10 bank loan requests are rejected.
Most of the times, small and medium-sized businesses find it difficult to secure loans from banks because they lack the necessary assets (collateral) to convince the bank of their credit-worthiness. While, back in the days, failing to secure a bank loan meant no funds, nowadays, the situation is different, thanks to Alternative Lending.
What is Alternative Lending?
Alternative lending is simply a broad term used to refer to the wide range of loan options available to businesses and consumers, apart from the traditional bank loan. The increasing difficulty of getting a loan via the bank coupled with the stress and time it takes to secure a loan led to the rise of alternative lending options for both consumers and businesses which make the lending process less stressful and less time-consuming.
Types of Alternative Lending Options
The prevalence of alternative lending is primarily thanks to the availability of different lending options all unique in their own way. Some of these alternative lending options include the following:
Micro-loans
This is one of the most prevalent alternative lending options available to both businesses and consumers. This lending type is ideal for those in need of a relatively small loan amount. Usually, short-term in nature, these loans usually do not exceed $25,000 and tend to be spread out over a period of five years. This allows the business or consumer enough time to repay the loan. Micro-loans also carry an interest rate which is generally lower than the rates on bank loans and also offer a means through which consumers and businesses – especially small start-up businesses, can acquire funds within a short period of time.
Peer-to-Peer (P2P) Lending
The increasing popularity of alternative lending on the internet has led to the creation of more and more peer-to-peer networks. Peer-to-Peer lending acts almost like most social networks. It is built as a marketplace brings together individual borrowers and lenders together. This method of alternative lending allows individuals borrowers to be funded by individual lenders. The most important benefit of P2P lending is the availability of low-cost quick loans at an affordable rate. Examples of P2P lending companies include Harmoney, RateSetter, Zopa, Prosper and Funding Circle among others.
Crowdfunding
This type of alternative lending has gained grounds in recent years. This method of funding allows a project to be funded by small contributions of money from a large number of people, usually via the net. Two major types of crowdfunding exist – equity crowdfunding and standard crowdfunding. Both use the same method to raise funds. However, while equity crowdfunding requires that you let go of equity in return for funding, standard crowdfunding doesn’t really require much in return. Examples include GoFundMe, CircleUp, OurCrowd and MicroVentures.
Business-to-Business (B2B) lending
This type of alternative lending can be described as “P2P lending exclusively to businesses”. Used mostly by SMEs, this method allows them to fund their growth by borrowing funds from online investors (institutional and individual). With this method, SMEs can bypass banking intermediaries and significantly reduce the amount of paperwork and time they need for a bank loan. In addition, rates are very competitive, and it is very transparent and easy to use.
Other types of alternative lending include Merchant Cash Advance, Community Shares and Microfinancing (aimed at empowering SMEs), and Invoice Trading among others.
Benefits of Alternative Financing
Why is alternative funding gaining grounds in the 21st Century? Why are most business owners using alternative lending as opposed to traditional lending? Here’s why!
Ease of use
As earlier mentioned, it is relatively easier to be granted an alternative loan than a traditional one. Alternative loans come with less paperwork and less time spent on answering questions which allow the business more time to concentrate on growing and becoming sustainable.
Plethora of options
Most traditional banks do not consider loans below $200,000 as worth their time. This makes it difficult for them to give out loans to those in need of small amounts. Alternative lending has taken care of this problem by providing different means through which consumers and businesses can secure loans irrespective of the amount needed.
Reduced Interest Rates
Banks are generally less flexible with regards to interest rates and this is in large part, due to their bureaucratic nature. Alternatively, because of the competitive nature of the alternative lending marketing landscape, interest rates are more flexible and are generally less than the rates for traditional loans.
Easy Approval
While banks and other mainstream financial institutions take long periods of time to approve loans, alternative lending provides consumers and businesses with a means of getting quick loans which sometimes take only a few hours to be approved (especially for lenders who operate online).
FIN$ Funding is at the forefront of the alternative lending space and can help you meet your neeeds. If you need more information on just how we can be of service to you in your quest, go here now to get more information Alternative Lending and How it Works
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