Taking off as a successful company is a process, one that requires patience, perseverance and continued belief. It can be all the more stressful if a small company is lacking the funding. Alternative lending is the much-needed breath of fresh air of the traditional lending market. It has offered a brand-new position for loan applicants, giving them the upper hand where before they lacked any options, when denied by banks. The real innovation of alternative lenders is that they have normalized the lending sphere into a regular market. One where the client is treated like a client. Formerly, the restrictions of banks turned loan seekers into down-and-out beggars, turned away by banks and left to scrounge for help wherever they can get it. This “Les miserableness” like scenario is no longer the case in the lending sphere, thanks to the diverse variety of alternative funding.
And yet, the realities of the lending market are by no means ideal. While small business owners are sure they can find some kind of assistance, not all lenders are the same. Indeed, taking money from anyone is an ordeal which shouldn’t be regarded carelessly. Banks are regarded as the difficult to come by assistance, the long and intricate process with no guarantee of actual funding in the end. Still, when money comes from the bank, there are several aspects that make it much easier for the loan recipient. Going over what the hurdles of lending from a non-bank entity is not just vital for the potential borrowers. Undoubtably, it is important for lenders to understand what makes borrowers choose a specific lender, and what would cause aversion.
Looking at the full picture
There are several aspects of alternative lending that make them a better option for small businesses. Firstly, the approval ratings are much higher than a bank meaning chances are the borrower will get the funding they need. Yet, while getting the money is the ultimate goal, there is a cost a borrower should be made aware of. Higher interest rates are to be expected but figuring out if these rates will ultimately deem the enterprise unprofitable is crucial. A lender should strive for transparency and make sure the loan applicant knows exactly what it is they are signing on to. Of course, giving out a loan is the lender’s objective. Nevertheless, keeping in mind that the money needs to be returned while the business is in the process of leveling out and beginning to turn a profit, is key. Otherwise, the loan recipient may find themselves in a grave situation, and the lender might not get their money back.
Additionally, alternative lending tends to be more flexible than banks, which is a lucrative incentive for potential borrowers. The problem is, if the loan terms are too lenient the lender might pressure the borrower to refinance the loan at a very expensive premium. Alternatively, a lender might feel the need to coerce the borrower to give over more ownership of their business. These occurrences are not rare in the lending sphere. A lender could be feeling the pressure if the company they help fund is not making as much as predicted, and change the tone if they suspect they might lose money. This is not just a worst-case scenario for the borrower but for the lender as well, who might suffer a hit to their reputation. Unfortunately, with so much competition, reputation is one of the key elements of success in the field.
Keeping it professional
Lenders must keep in mind that having a solid track record is one of the most important elements of success in this field as in any field. In the lending sphere it can make or break your entire enterprise. Also, like every field, lenders can expect to encounter loan applicants from all walks of life. Making sure potential borrowers know what the loan entails, explaining the details patiently and helping them choose the best course of action is a necessary practice. Keeping a solid, close relationship with clients helps lenders understand the financial aspects better, lessens the chance for unexpected disputes and helps borrowers feel secure.
Another positive aspect of alternative funding is how fast the loan recipient gets his money. For a small company with immediate funding needs, the fact that you can get money within a day or two, means everything. Still, the high interest rates are not the only issue the borrower needs to keep in mind. As opposed to banks, many alternative lending methods don’t have to answer to set regulations. This means it is up to the lender to make sure that every method in the process used is legal and legitimate. Protecting the reputation of a lender, as aforementioned, is of utmost importance. Even bending the rules slightly can have harsh consequences on a lender’s credibility.
With all that said, alternative lending is a very positive force, helping people find solid ground, redefining the lending market and boosting the economy. Lenders, all kinds, but especially alternative lenders, should keep in mind the importance of transparency. In a market still developing, with no set rules, nothing beats a straightforward relationship with clients. Thinking about the borrower and their overall lending experience is vital for a good reputation. When money is on the line, things can escalate quickly.