Small business owners have a variety of options for alternative lending when their traditional bank does not offer adequate funding, or denies a loan request. Alternative lenders are becoming more popular as Americans deal with high inflation.
Alternative lending can be a technology-enabled funding solution for underserved market segments.
Alternative Lending vs. Alternative Lending vs. Traditional Lending
The difference between traditional and alternative lenders comes down to who provides the money. In the past, funds were provided by a financial institution such as a credit union or bank. Alternative lending allows small businesses to receive funding directly from investors ).
Alternative lending is gaining in popularity, mainly because it is more flexible and approvals are faster than with traditional lenders. Investors also benefit from alternative lenders because of the accuracy and speed with which they can determine credit risk and loan pricing.
How Does Alternative Lending Work?
Some alternative lenders specialize in certain industries and are tech-based. Alternative lending platforms also use a unique algorithm for assessing debt risk and determining appropriate rates.
In this scenario, the platform will manage the relationship between the investor and the small business owner. The investor decides which loans they want to fund. Some alternative lending platforms rely on partner banks to fill the funding gap, but they are still considered non-bank options since they are provided through an alternative platform.
Alternative Lending Benefits
Your unique situation will determine whether you apply for a loan to start a small company through a traditional bank or a non-traditional lender. There are some benefits to applying for a small business loan from an alternative lender.
Alternative Lending Benefits:
– Easy Application Process
– Quick Approval
– Flexibility Terms
– High Approval Rate
Small business owners know the pressure of having to pay their employees when they have a slow cash flow. Or, the delicate balance of keeping a business afloat while preparing for the next decade by financing the newest technology. Alternative lending can assist with both, by providing short-term loans to finance new technology and working capital loans for expenses such as payroll.
Small business owners who are looking to update their workflows or develop apps with technology can find a loan from an alternative lender.
Small Business Owners Benefits
Alternative lending can help you get the funds that your small business needs to continue operating. Alternative lending platforms are easier to use, quicker, and more likely for you to be approved.
Benefits for Lenders
Alternative lending is a way to help underserved segments, such as small businesses and women- and minorities-owned firms, who need working capital or wish to expand their service offerings. Private lenders can also benefit from unique investment opportunities. Alternative lending is attracting private alternative lenders as well as corporate investors due to its attractive yield, short duration, robust lending programs and diversification.
Investors benefit from the highest level of diversification with alternative lending. They are not putting all their eggs in one basket but instead putting fractions in different baskets. This creates resilience. This resilience is good news, as inflation continues to pressure small business owners.
The Alternative Lending Market
The technology is affecting every aspect of business, but especially the financial industry. Finance and technology are increasingly convergent due to the convenience and security that comes with receiving money quickly online. Oracle’s Digital Demand Survey shows that 40% of respondents believe non-traditional lenders are better suited to help them with their financial niche needs.
FinTech is exploding in possibilities, particularly when the number of businesses who need non-government financial help as the country recovers after the pandemic is not lacking.
The big banks have been neglecting small businesses for a long time. SME Finance Forum stated that in 2018, there was a $5 trillion gap between the funding requirements of small and mid-sized businesses, and the lending opportunities available.
Alternative lenders have taken note of the unmet business needs and a lending ecosystem has developed over the last few years:
Direct Lending
Direct lending eliminates the financial institution and the red tape that comes with traditional lending.
Venture Debt
Venture debt can be a good alternative to venture capital. It allows businesses to keep control of their finances while taking advantage of new opportunities. The venture debt market has grown by almost 30% in the last year, which is comparable to other alternative lending.
Structured Equity Products
Structured equity is a flexible financing option that can help small businesses grow. Structured equity products are growing at a rate of $7 trillion, thanks to technology and innovation.
Debt Financing
Often used to consolidate debts, alternative lending can help businesses improve their financial stability.
Alternative lending is a growing competitor for the big banks. The technology-enabled funding solution that was first introduced a few short years ago to fill a $5 billion funding hole is now threatening to transform and upend traditional lending.
Alternative lenders can provide small businesses with funding sooner than they would otherwise be able. Investors can benefit from a combination of yield and term that has proven to be stable in turbulent economic times.
QuickBridge offers small business loans online. You can apply today and have the funds in your bank account within one business day. Discover our flexible financing options.
