The world of alternative lending has boomed within the past few years, especially in the realm of small businesses.
An increasingly restrictive lending environment due to regulatory guidelines enacted after the 2008 economic meltdown has affected how small businesses get approved for traditional bank loans. Now many small business owners have turned to an alternative to get the cash they need: nontraditional lenders.
Astoundingly, within the first two months of 2015, $340 million in venture capital has poured into the alternative lending space, further igniting the prediction that alternative lending is to become a trillion-dollar marketplace.
That’s right – TRILLION. Not billion. Not million. TRILLION.
So why is alternative lending predicted to change the face of the small business economy as we know it?
It has a lot to do with its simplicity.
During a time when traditional bank loans are more stringent, business owners simply don’t have the time, or sometimes the credentials, to receive a bank loan. An overwhelming 82% of small business owners are getting denied from banks – a major portion of these denials due to their quality of earnings or cash flow, insufficiencies in collateral or their current debt loads.
As such, the large bank share in the lending world has dropped from 61% to 33% since 2012 – so how do small businesses get funds now?
That’s where alternative lenders come in.
Able to take on more risks than traditional bank loans, direct lenders for small businesses have a higher apporval and success rate - and it’s way easier.
On most alternative lending platforms, the entire process is straight forward.
The borrower is able to apply for a loan, either through a direct lender (such as PowerUp Lending Group or peer-to-peer lender like The Lending Tree.) Upon meeting the terms set by the individual lender, the borrower tends to get their answer relatively quickly.
On the lenders' side, especially in the marketplace front, they have the opportunity to have control over how much they are lending, and exactly to whom they are lending. This control and risk-management makes lenders feel more secure about the deals they are making.
On another note: millennials play another large part in the future of alternative lending.
Known for their strong entrepreneurial spirits and their “need it now and need it fast” attitudes, millennials are the perfect candidates for alternative lending.
In 2014, 20% of all loan applicants were millennials… Today, more than 30% of all loan applicants are millennials. That’s a 10% increase in just 12 months, and with 77% of millennials planning to grow their businesses within the next 5 years, according to the Small Business Owner Report, it’s no surprise the alternative lending marketplace has such a high evaluation.
The millennials preference of alternative lending isn’t just an empty idea, either. In the first half of 2015, of all millennial small business owners, 58% applied for a loan – and of those that did apply, 58.5% were funded via alternative lending.
The fact is, millennials aren’t going anywhere. Rather they are entering the business world in droves.
They like shorter-term loans with a faster funding and approval rate, better to feed a generation accustomed to online shopping and quick answers.
And at the rate both millennial business owners and alternative lending is going, both are here to stay.