Take a look at a simple merchant trying to keep his or her business afloat or the hard-working single mom who is struggling to make ends meet. What about the young, ambitious student who couldn’t even get a secure financial loan? Australia has a recognisable majority of these average individuals. Wondering what these people have in common? Simple. The inability to obtain a fairly good credit score and a positive bank history. This is where alternative lending comes into play. When people consider a small business, a struggling parent or a student, they may take pity, but that’s not how financial banks in the country work. As harsh as it may sound unless the person has a good credit score or a good transactional history, it’s nearly impossible for them to obtain a secured loan to pay off their payments.
Alternative Lending: What Is It?
It’s a type of lending that occurs outside the boundaries of traditional banking institutions. Being much more accessible, these lenders use different online tools and software to streamline their efforts and reduce the costs that traditional banks usually incur in the long run.
It is often surprising that big banks reject many of the loan applications of small businesses and companies because of their inability to meet certain criteria. Alternative lenders, private groups who deal in alternative lending, help alleviate some of the financial stress by giving out highly flexible and easily accessible loans. Most of the lenders have their companies based online, and although they do have higher interest rates, it is good to know that they don’t have strict requirements for credit scores or history as a traditional bank does.
Such detriments to the loan process have even boosted the popularity of alternative loans throughout Australia. The demand has pushed the market value of alternative finance in the country to roughly 1.3 billion dollars as of 2018. Banks’ requirement for consistency in cash flows and collaterals has driven many young businesses to opt for alternative finance to meet their urgent needs. Being realistic in its requirements and far more appealing, alternative loans have given something that many traditional banks couldn’t: Reliability.
Types of Alternative Loans
Alternative lenders have a varying degree of interest rates and flexibility policies under their umbrella. But it is good to learn the most common types of such lending available:
- Those That Can Come In Terms: Long term or short term loans come under this category, having a set repayment plan within a specific period.
- Line Of Credit: Refers to the kind of funds that can be accessed by the borrower as they need and easily accessible.
- Equipment Financing: The type of loans specific to purchasing equipment for business.
- Invoice: The lender gives the capital required of the borrower’s unpaid invoices to secure that.
- Cash Advances: Also known as merchant cash advances, they are very common in the Australian alternative finance market. The advance that is borrowed is paid back with a percentage of the daily card transactions of the business along with a lenders fee.
With speed and accessibility being the top qualities of alternative loans, it might be fair to consider that they have some other important advantages. Turnaround times are quick when it comes to the processes and availability of the funds. This means a company doesn’t have to sit around waiting for the funds to process. With so many diverse loans available, alternative lending gives companies a way to grow that many traditional banking systems simply couldn’t get them to.
