Technology has already changed the way we borrow, including the shape of the actual lenders themselves. Banks no longer represent the only option for lending, whether you are an SME or a big corporation.
Why big bank lending fails to deliver
When business owners find that their eligibility criteria don’t match up to the standards expected by their bank they go elsewhere. According to the British Business Bank, Small Business Finance Markets Report around 100,000 applications from SMEs for finance are declined by the banks each year.
The reasons to turn to alternative lending can be as simple as being refused an overdraft from your existing bank, accessing more flexible invoice finance packages or just getting finance agreements in place much quicker.
So it comes as no surprise that alternative lenders have become efficient in offering customers friendlier online lending processes. And in doing so have managed to remove a lot of the hassle in applying for finance.
The people most affected by the failure of the banks to provide adequate levels of financial help is from small businesses.
According to Lachlan Heussler, MD for online financial lender Spotcap, “It’s difficult for banks to profitably serve SMEs globally, they only account for 20-30 per cent of total revenue and SMEs are beginning to notice they’re not a priority.”
In short, SMEs don’t feel loved by their bank anymore, they are forced to wait a long time for their applications to be considered, they’re tired of being told ‘no’ and frankly, there are far more younger, flexible and more dynamic online funding platforms to choose from.
- Online Lenders
- Crowdfunding
- Peer-to-peer Lending
- Startup Grants
- Government Support
- Friends
- Angel Investors
- Private Equity Funding
Bank borrowing, particularly since the culling of the pre-2009 excesses, is clearly not suitable for everyone. When looking for funding for growth or for cash flow, it is becoming a more obvious choice to look at some of the alternative lenders.
Alternative lending is more attractive
This is because there is more variety found in the alternative market, whether it is for a startup looking for more support in developing their service or product or an established enterprise needing more specific funding help.
Alternative lending, developed in partnership with technology offers more solutions than the banks who, as a result, are getting left behind, despite adopting similar technologies.
The fact is that banks have already acknowledged the market entry of alternative lenders to the degree that some are establishing partnerships with them and even becoming part-funders.
The reality is that the alternative is becoming normal for many business owners.
It isn’t just lending that has seen the shift away from the big banks. Technological innovations like PayPal’s move into business loans, Apple Pay, the sheer diversity of the alternative lending market and even robo-advisors that can offer share portfolios for investors, have offered us an idea of how our future banking needs will be met.
What is perhaps most surprising is that there remain many small businesses still unaware of what the alternative lending industry has to offer and the solutions it can tailor.
Yet it now provides the competition to the banks that is much needed, especially after the banks tightened their belts after the banking crisis. And even though the banks are attempting to respond, the alternative lending model is here to stay.
