In the wake of the financial crisis, banks became far stingier in their lending practices, turning down more applicants than ever and charging high interest rates on those who were able to qualify for a loan. As a result, alternative lending sources began to emerge to provide necessary funds for consumers and small businesses in need.
Alternative lenders are typically less restrictive than banks and offer a simpler and less time-consuming application process. Since loans are easier to access from these sources, traditional lenders are being spurned by borrowers even now that the economic climate is on steadier footing.
Why consumers and small businesses alike are ditching traditional
Crowdfund Insider noted that borrowers are approaching alternative lenders because the overall process of applying for and receiving a loan is more amicable. Availability of funds, better rates and trust were the most common reasons for loan-seekers to go through a non-traditional source. Peer-to-peer lending is a booming industry that is swiftly displacing bank lenders. The source reported that P2P is the fastest-growing sector in the market.
Transparency is a big issue for borrowers, the source said. The financial crisis left a bad taste in many people’s mouths with regard to banks, so winning back the trust of the consumer has been tough for them. Meanwhile, alternative lenders have swooped in to fill the void created by the banking industry’s unwillingness to lend in the direct aftermath of the economic crash. These new resources have appeared transparent and benevolent in comparison to the banks, which has contributed to the rapid growth the sector is currently experiencing.
Crowdfund Insider projected the P2P field to continue to grow in the near future, as the companies gain further support and investments. Borrowers are largely not enamored with the tedious application process, high interest rates and molasses-slow approval process that are inherent parts of bank lending, and this should only serve to stoke the flames of the alternative lending fire.
Things to consider when applying for a loan from an alternative lender
For consumers and small businesses considering applying for a loan from an alternative source, there are some important details to know before initiating the process. Consumer Reports advised that any potential applicant should look into his or her credit score to gauge the situation beforehand. The more a borrower knows going into negotiations with a lender, the smoother the transaction will go. The source also recommended applying for loans from multiple organizations. Options are always good to have for the sake of comparison, and some lenders might approve the loan-seeker, while other might not. Approval comes on a case-by-case basis, and lenders have different standards and values.
Crowdfund Insider suggested that funds are more readily available to potential borrowers when they go through an alternative lender, and the interest rates can be lower than those of traditional banks due to the heavy regulations to which those enterprises are subject. The source also said that the added transparency of working with a P2P organization is a major benefit for wary loan-seekers.
Alternative lenders are starting to displace traditional banks due to their amenable features, like access and timeliness. Banks have been hesitant to lend following the financial crisis, and new sources of funding have jumped up to fill the void in their stead. P2P lending is perhaps the most rapidly expanding sector of the alternative lending sphere, and borrowers are largely ditching the banks in favor of these consumer-oriented organizations.
The lending game has been flipped upside down in recent years, and there does not appear to be any evidence that supports a full-scale turnaround for the banking industry.
Author: Sean Albert – SVP & Chief Marketing Officer MicroBilt Corporation