Small business lending is big business worldwide. If you conduct a Google search on “alternative lending” or “alternative lending statistics,” you’ll see posts going back several years and spanning both sides of the globe. The sheer number of results indicates that something’s going on in the world of finance. So do the financial figures. A report from Let’s Talk Payments (LTP), a FinTech research firm, predicts that alternative/private lending could rest at $350 billion by 2025. If you add the online element — LTP breaks down its figures by peer-to-peer (P2P) and online — the dollar amount increases to a cool $556 billion.
The research firm says the growth can largely be attributed to small business customers. They need cash now, but don’t qualify for a traditional loan for one reason or another. But fast cash isn’t the only reason to seek out an alternative lender. Other benefits exist, and they’re shared here so that you can decide if alternative/private lending is right for you.
When you need money for your small business or organization, you might automatically leap to traditional loans and grants. It’s not unexpected. The two small business funding options are basically hardwired into the small business owner DNA. They can fill needs that alternative lenders might not.
However, standard applications for a loan or grant often require pounds of paperwork and patience. Waiting can be for weeks and even months before hearing anything.
The walk-in freezer broke, or you need to hire a new chef to meet increased customer demand. These challenges can’t wait. They need to be resolved, now. And that’s where alternative lending comes in. Many alternative lenders will approve your application within hours. The money often goes direct to your account too. With that money in the account, you can keep the ice cream cakes from melting and prevent the perfect chef from walking out the door.
Standard bank loans feature rigorous requirements. These can range from your time in business to the presence of collateral. Banks may pay inordinate attention to your credit rating and financial well being, too.
Small business alternative lenders will pay attention to some of those elements. However, they may not require all of them. Some providers, such as those working in the merchant cash advance space, might not require anything more than records documenting business health and ability to repay.
If you’ve taken out a small business loan or received a grant in the past, you know that they sometimes come with stipulations. The provider says, “We’ll give you this money as long as you use it per the agreement.” If you do, great. If you don’t, trouble could come your way.
As a result, the small business lender can reverse the loan agreement. It might even add a fine or penalty. You can be put on a black list, making it harder to seek loans or grants in the future.
Private small business lenders could employ those same regulations, but they rarely do. They tend to offer more flexible financing with fewer guidelines and oversight.
Small business lending can be risky and cost prohibitive, somewhat explaining the trend toward big banks collaborating with alternative/private lenders. By working together, they decrease risk and costs and help more small business owners.
If your bank isn’t one of those collaborators, you might want to take a closer look at alternative lending. The companies providing private financing often are smaller or focus exclusively on small and medium-sized business owners. To them, your success is the whole point. Because of that, they’ll work alongside you to identify the best loan product for your situation.
Finally, traditional loans often claim strict repayment terms and interest rates. The strictness makes sense as compliance is a huge concern for traditional lenders.
Small business private lenders sometimes come under less scrutiny because they offer different funding options. Loans fall under the purview of the government. Lines of credit and merchant cash advances, though, are commercial transactions.
That fact means financing products receive scrutiny from other governing bodies, such as the Monetary Authority of Singapore (MAS). The MAS has several laws that dictate how financial and other transactions are handled. The laws are relatively flexible, allowing an alternative lender to create terms suited to your circumstances.
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Reviewed on 18 February 2020