The world of alternative finance has come on strong in recent years, and more and more small businesses have begun turning to it in the search for favorable loan terms and/or alternatives to borrowing from banks.
But the world of online lending can be an uneasy transition for many business owners who have always relied on banks for loans.
Here’s a breakdown of what alternative finance has to offer startups and other small businesses.
The AltFi Advantage
Marketplace lending is just one new addition within the alternative finance landscape. The lending platforms advertise several major benefits to borrowing money from a marketplace lender versus using traditional banks. The advantages start right at the applications process. Most marketplace lending websites boast quick and easy loan application processes that can be conveniently completed from the comfort of home.
Not only does the borrower get to avoid the hassle of going to a bank branch and dealing with bank bureaucracy and long waits, online lending platforms don’t have to pass the inherent costs of operating brick-and-mortar bank branches on to customers.
Marketplace lending also promises a fair share for borrowers with less-than-ideal loan applications. For some borrowers, credit scores and credit history may not be up to bank’s restrictive standards.
A first-time borrower that is funding his or her startup has likely never applied for a business loan before, and the banks will often penalize borrowers for lack of experience.
In addition, many banks limit their underwriting activity to large business loans. It costs banks about the same amount to process a $50,000 loan as it does to process a $1 million loan, but they profit much more off of the larger loan.
Therefore, a small business owner in need of a micro-loan (less than $35,000) may be rejected by banks even if he or she has a perfect credit history.
This gap is bridged by marketplace lending loans where borrowers enjoy the benefit of not being defined by the rules established by banks. With the ability to take out personal loans ranging from $500-$100,000, a small business now has a resource for overcoming the rejection from banks. A borrower could have their application approved in a matter of hours and money in their account within days.
Finally, the marketplace lending process promises to deliver more transparency and more control to the borrower. Both lenders and borrowers, through the online platforms, have clarity into the processes, fees, returns, and other variables associated with this new alternative financing option.
What’s Holding Business Owners Back?
Despite the explosion in popularity, many businesses are…
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