The loan sector has changed significantly over the years. While banks and traditional lenders used to be the only options available, these days businesses have access to a variety of funding options. Alternative funding has started to take over traditional lending. The question is, why has there been such a rise in alternative lending? Here, we’ll look at why alternative funding options are gaining in popularity and the benefits they present.
What is alternative finance?
Alternative finance is basically any form of finance not offered via traditional methods. Banks and building societies are the main traditional lenders which once ruled the finance sector. However, these days borrowers have a huge range of funding options open to them. Crowdsourcing, peer to peer lending, a merchant cash advance and lines of credit are all viable options available to start-ups and small businesses in the UK.
Why has it become more popular than traditional lending?
There are a lot of reasons why alternative funding has become more popular than traditional avenues. The fact it is easier to get accepted is potentially one of the biggest reasons behind its increasing popularity. Traditional lenders have really tightened their criteria in recent years. This has made securing finance much more difficult. Alternative funding on the other hand, doesn’t tend to have the same strict requirements. This makes it a popular option for start-ups in particular who don’t yet have three years’ worth of accounts to show lenders. So, the ease of application and the increased chance of getting the finance they require, is largely driving the increase in alternative lending.
The benefits of alternative finance
Choosing alternative finance options provides businesses with a number of benefits. These include:
- Funding isn’t secured on assets
- It’s easier and faster
- Affordable repayments
With traditional lending, the finance provided is usually secured against a company’s assets. However, with alternative finance, it tends to be offered on an unsecured basis. Or, in the example of a merchant cash advance, funds are secured on future sales. Alternative finance also tends to be easier to apply for and the funds are received much quicker. With banks and other traditional lenders, the money can take over a week to go into your bank account in the rare event that you are accepted. With alternative finance on the other hand, funds are often deposited the same, or next day. Repayments also tend to be much more affordable via alternative platforms too. This is a major advantage for start-ups and those looking to grow their company. Overall, it’s not hard to see why alternative funding has become a popular option for UK businesses. It can help businesses which are struggling to receive traditional funding, while providing a more affordable repayment plan.
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