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Six Benefits of Alternate Lending for Small Business Owners

 

April 5, 2021 (Investorideas.com Newswire) Whenever the topic of borrowing money to fund a business comes up in a discussion, one of the first things that come to mind is how to acquire a loan from the bank. There are still many people today who are unaware that other quicker, less expensive and fully legal borrowing options are available.

"Alternate lending" is a broad term that encompasses all these other options. It can be defined technically as the sourcing and acquiring of funds by methods or through dedicated networking platforms provided outside of traditional banking. It is here that the non-banks operate. They are able to legally provide bank-related services such as the provision of credit card facilities and mortgage loans. A shining example of such a non-bank is Alpine Credits.

The loans obtained in alternate lending are of varied types. The methods of funding are also of different forms. The most popular method of alternate lending is peer-to-peer (P2P) loans. In this method, the borrower is brought to the notice of the investor and vice versa with the non-bank acting as a middleman. There is typically an online or offline marketplace where all this is set up. In this marketplace, the borrower and lender interact directly, and they can come to their own agreed terms and conditions, and no financial institution (banks) needs to be involved.

Crowdfunding is also another popular method used in alternate lending. Here, funding requests are sent out to the public. Several individuals give a little amount of money which accumulates into a larger amount. There may or may not be an incentive provided for doing so, such as a future reward whenever the outcome of the loan becomes successful or a benefit in some share of any profits made.

There are many other forms in which alternate lending can occur. These include but are not limited to: Merchant Cash Advances, which is based on expected sales and profits that would come in the future of the business; Credit unions, which are non-profit organizations of joint financial contributions of people with a particular common membership; Micro-lenders, which give small amounts to be paid over specific stipulated periods; Revenue-based financing, which is similar to Merchant Cash Advances, but with an initial cash payment given to be paid off in installments; and community development funding which is offered by some financial institutions to under-developed communities.

Benefits of Alternate Lending

  • Easy access to Loans
    There are many cases where banks would typically deny a borrower any facility for credit. This may be due to a host of reasons ranging from poor credit score to lack of the venture's perceived future profitability. Alternate lending makes funds available to all such borrowers who the banks would reject.
  • No silly Bureaucracy
    As is the case in many official administrative processes, there could be a lot of delays. There are far fewer bureaucracy and administrative bottlenecks to deal with when finally approved for a loan when alternate lending is used.
  • Convenient repayment times
    When considering that in acquiring a Merchant Cash advance, there is no set time to repay the amount owed. We can easily see that this is by far more convenient for a small business in its efforts in trying to break even. The lender, having obtained some of the future credit receipts of the business at a discount, then receives a payment based on a daily percentage of any subsequent credit card sales. Another advantage is that the borrower would have received a certain fixed sum as capital and would not be bothered unduly by the potential case of being unable to pay back the loan as a result of low sales because it is based on percentage.
  • Better Loan Terms
    In a peer-to-peer arrangement, it is much easier for the small business owner to reach a set of terms that will provide a lower interest rate than would normally be expected in any such investment in his particular type of business. Negotiation skills, the ability to pitch ideas, and probably even sheer goodwill can come into play. Since the usual red tape for ratifying such an amount under such terms and conditions without questions being asked would most likely not be an obstacle, this would surely be an excellent way to go.
  • Awareness Generation
    As it concerns crowdfunding, this is almost always done with an online target funding source. This is a great method because it enables easier receiving of payments and provides a very large creditor population base to draw from, and that is also quickly accessible. In this era of the ease of social networking, awareness creation presents as an impossible task.
  • Good Exit Plans
    In the unfortunate case of loan defaults and inability to pay, the penalties tend to be much less harsh than what would obtain if borrowing from a bank. This may not always be the case, though, but it usually is. Even though nobody wants to borrow money just to go ahead and lose it all, it can and does happen that unforeseen situations or overly optimistic financial projections can come into play. An exit plan to cater for this should the business fail is always to be put in place. And not having a creditor breathing fire down your neck with a life-wrecking lawsuit can only serve to help the entire liquidation process easier.

Conclusion

It is easily noted that in comparison to the traditional means of funding a business through bank loans, alternate lending quickly presents as a smoother and more convenient option.


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