Since the economic crisis in 2008, banks have adjusted their lending policies to be stricter. With tighter criteria in place, it has become a bit trickier to secure a loan with suitable terms. If you are having trouble meeting bank conditions or need the funds urgently, it is definitely worthwhile to explore alternative lending options. In fact, consumer demand for non-traditional lending has skyrocketed in Australia.
According to a recent report by KPMG, Australia is now the second largest alternative finance market in the Asia Pacific region. The survey showed that much of this success is owed to government regulation and their strong backing for financial technology (otherwise known as ‘fintech’). The market may still be relatively small, but its development is booming.
What does this mean for you as a borrower? You will have access to more favourable and innovative lending options as fintech companies flourish and the banking landscape becomes more competitive. With more diverse choices comes cheaper loans – and we all want to save some extra money where we can.
So, what is alternative lending?
Alternative lending can be defined by two principles: first, it places you, the customer, at the centre of the loaning process. Second, it is driven by fintech. Simply put, advancements in digital technology are directing convenience and control back to you.
The application process is shorter and simplified, and can be done online. Some lenders assess eligibility differently, and consider things like your education, spending habits and future income. This is why alternative borrowers often find it easier to get approved for a loan, even if they have bad credit history.
Here are some types of non-traditional lending products:
Alternative business loans
There are a few reasons why a smaller business would prefer to seek out an alternative lender over a bank (read our blog ‘Broker VS Bank‘ for more information). It can be more flexible – an alternative lender typically places more consideration on the growth potential of your business rather than current credit, and they usually offer unsecured business loans where a personal guarantee is sufficient for approval.
Are you a business owner who is struggling with late payments from clients? This cash flow management service outsources the process of handling invoices while directing upfront payments to you. By selling your unpaid invoices, it frees up cash faster to invest back into your enterprise.
Also known as P2P or marketplace lending, this is a form of loaning where the lender acts as a consolidator for individuals or institutions to pool together investment funds for borrowers. Why is this cheaper? As the middleman, the lender is not supplying their own capital and may thus be more flexible when it comes to lowering interest rates.
Is alternative the new normal? Do not rule out the big banks just yet.
Banks too boast a variety of loan services and the interest rates can be lower than what alternative lenders offer. Plus, alternative finance does not imply lax policies and a quick ticket to getting loans. And when it comes to lending capital for business, the banks have their own specially-tailored business loan packages to compete with alternative providers.
Rather than seeing banks and alternative firms as representing tradition and modernity, conservatism and innovation, they can be understood as a positive collaboration. Fintech is transforming the way banks operate for the better, and vice versa.
Curious about whether traditional or alternative lending would work better for you? Get in touch now to find out more.