Alternative lending is on the rise, representing around 60% of annual gross lending to small businesses. From funding growth and bridging cash flow gaps to managing seasonal demand and acquiring essential equipment, there are a number of reasons why more business owners are choosing the alternative route to progress their ventures.
But what exactly is alternative lending, why are more people opting for it, and how can your small business benefit? Find out in this blog.
What is alternative lending?
Alternative lending is a collective way of describing finance, loans, and other non-traditional types of lending provided by any entity other than a traditional bank or credit union. These include non-bank lenders, challenger banks, online platforms, specialised industry-specific financers, or even peer-to-peer networks.
There are a range of alternative lending types beyond the traditional ‘loan’ that offer businesses a wider choice when seeking funding. Common types include:
- Online business loans – fast funding through fintech lenders
- Peer-to-peer (P2P) lending – individual direct lending facilitated through platforms
- Invoice financing (otherwise known as factoring) – borrowing against unpaid invoices, popular amongst agencies
- Revenue-based financing – where repayment is tied to your future revenue
- Crowdlending – an approach where multiple investors collectively fund a loan
Why is it so popular among SMEs?
Growing small and medium-sized businesses are typically less risk-averse than larger, more established companies. With more flexibility, less to lose, and a tenacity to explore agile options to accelerate business growth, alternative lending often stands out as the preferred option here.
What’s more, fintech companies bring additional capabilities, like digital-first tools and processes, that play to the preferences of more nimble, tech-minded businesses. It can also boost investor confidence, as it signals that a business is resourceful and can think creatively.
What are the key benefits?
Wondering whether alternative lending might be the right option for you? Here are some of the key benefits, compared to traditional lending, that make this the go-to option for more and more small businesses:
- Faster credit decisions – swifter access to funding for businesses that need to move quickly
- Flexible products – specialised lending options that are more closely aligned to specific industries or business needs
- Lower barriers – increasing the chance of being accepted without the capital or assets that traditional lenders might require
Speak to an accounting professional for lending advice
It’s clear to see why alternative lending is rising in popularity. But as with most financial decisions, there isn’t one size that fits all. While alternative lending might be suitable for some, other factors such as interest rates, repayment periods, and regulatory requirements could make the traditional route a better bet for your needs.
Need clear, strategic financial advice to make an informed decision on what’s best for your business? Nabarro Poole can help by simplifying complex accounting approaches and presenting the best options tailored to your unique growth journey.
Get in touch with our friendly team today for a chat about how we can help.
Recent Comments