Financial institutions offer a plethora of products and services for individuals and business entities. Options range from interactive checking accounts to comprehensive insurance policies. Loans are among the most popular offerings from a traditional financial institution, and many individuals believe that banks are the only way to originate a new loan. This is not true.
Alternative lending sources have become increasingly more popular over the past few years and new opportunities for non-bank loans are entering the market on a regular basis.
Alternative Lending Solutions
Startups, new business enterprises, and existing small businesses sometimes have difficulty obtaining a loan through traditional business and retail banking outlets. Loan approval could be delayed or denied altogether based on a number of different factors, such as business or personal credit history, collateral, outstanding debt, and projected revenue analysis.
Non-bank, or nonbank financial institution (NBFI), loans are a viable alternative for business owners seeking temporary financial support. Peer to peer lending options, similar to crowdfunding solutions for individual agendas, have become a popular investment vehicle for modern investors interested in expanding their portfolio. Alternative loan options are available from a group of individual investors or an institution well versed in specialized lending situations.
Alternative Lending Benefits
Alternative lenders are of specific interest to borrowers considering loan options. Borrowers who are operating a small business or opening a micro business may have difficulty providing adequate documentation within their first few years of operation. Alternative lenders have their own specific criteria which may not be as restrictive as traditional bank options and underwriting approval processes.
Since NBFI lenders usually do not have full service banking licenses, they are not subject to some of the regulatory guidelines that limit offerings from regular banks. Contemporary businesses look much different from enterprises that began just a decade ago. A majority of the largest traditional banks were established by the early 1900s and still use many of the same principles in lending. Modern business practices and the technology used in daily operations demand a different style of financial support.
A Balancing Act
Investors and lenders who operate in the alternative realm are on the cutting edge of a fast moving trend. Demand for alternative lending sources is expected to continue growing over the next several years.
Although there are obvious benefits to both parties engaged in an alternative lending arrangement, there are also potential disadvantages that must be considered before entering into a new transaction. Borrowers must carefully review loan documents to fully understand the repayment terms and any potential consequences for late or missed payments.
Alternative lenders offer a unique and valuable service to micro and small business owners across a wide range of industries. Lenders are often tasked with making loan approval decisions when they do not have direct experience with the type of business or industry. Such instances create apprehension for investors when it comes to accurate review and appraisal of collateral and other supporting documents.
Appraisal Economics provides a reliable solution for all lenders. Our experienced staff members offer expert advice and accurate appraisals on virtually any collateral, helping lenders make sound financial decisions with confidence. To learn more about our services, please visit us on the web.