These days you don’t have to put on a tie to visit the bank eager to appear capable enough to be running your own company yet contrite enough to be there cap in hand asking for a business loan.
Not only do alternative lenders offer finance based on different criteria than the banks, but there is such a large number of alternative financiers out there offering a range of tailored finance packages it just isn’t necessary to have to go to the bank.
And this is why a new generation of business owners are more likely to be sporting a pair of Vans’ Old Skools than a deftly tied Windsor knot!
Here’s a look at why alternative lenders have changed the way borrowers access finance:
1. Quick Loans
It might sound like another new loan company you see advertising on TV but getting a quick loan from alternative lenders is exactly that. Significantly quicker than what you can expect from traditional bank loans, which can take months to process.
With alternative lenders this can be reduced in some cases to less than 24 hours. The reason why they can process these applications so fast is the way they approach your application.
Firstly, they take a look at your business financials, creating a clear picture of your background, how you pay debts, the industry sector you are in and your future financial projections. Based on this they can offer you a quote without referring it back to other departments for approval and sign off, delaying your loan application further.
2. Business Loans For Everyone
Again this isn’t a tagline for the loan company TV advert, but an acceptance that every business, however small, has the capacity to pay back a business loan.
Where traditional bank loans can cut short your loan application based exclusively on your credit rating, alternative lenders take the wider picture. They might not offer huge loan amounts, interest rates might be higher, but they will be able to offer any business some level of funding; usually a lot more than you might expect.
This is because your credit rating isn’t the be-all and end-all of a loan application. Your business has a lot more variables to take into consideration, which alternative lenders are increasingly prioritising over your credit rating.
Alternative lenders are also quick to explain that their credit scoring and rating methods are more sophisticated than the banks and because they do not have to deal with numerous branches or operate costly IT systems or even take into consideration their capital or liquid assets, it makes them more efficient than banks and therefore can offer better or equal rates to borrowers.
3. Short Term Finance
A lot of businesses aren’t looking to secure hundreds of thousands of pounds, many are actually just interested in small, short-term loans. Banks often focus on larger loan sizes – there is plenty of column inches to suggest that bigger loans equal bigger profits for the banks. But many small and medium sized businesses are just after smaller loans – worth tens of thousands not hundreds of thousands – to get them where they need to be.
4. Online Convenience
The speed of alternative funding is obviously a big draw, but so too is the convenience of having an online account; not having to visit the bank to discuss changes. Everything can be done online from application to changes, which is a lot more business friendly than having to fill out forms and wait an eternity for a decision.
Furthermore, as businesses – like the rest of us – turn to searching online, they are far more likely to find an online loan from an alternative lender than from a traditional bank, furthering their decision to avoid the banks, many of which have probably already denied loan applications in the past.
5. Accessing Private Equity & Peer to Peer Lenders
Look closely at the funding behind alternative lending and you’ll find investment banks, commercial institutions, private investors and even government-backed funding agencies. Alternative loans have become so established that even traditional banks are offering to finance alternative lenders instead of offering equivalent loans directly themselves.
There have also been some clear initiatives set up by the government (like the Business Finance Partnership) which has invested hundreds of millions into the lending market. Much of this has been matched by private sector investors who are much more willing to invest in SMEs than the banks.
Obviously, we haven’t explored every reason as to why business loans from alternative lenders are growing at a higher rate than traditional bank loans. If you have another reason why you have chosen or are thinking of choosing to get a loan from an alternative lender, we’d love to know.