For most smaller businesses, banks were the primary option for obtaining loans when funding was needed. While there may have always been other options available, such as credit unions, equipment leasing and merchant cash advances, there are now many new alternative loan options available online for small businesses to take advantage of from car title loans online to P2P (peer-to-peer) lending . These types of loans can be obtained quickly online and give you access to the funding you need.
Benefits Of Online Alternative Lending Choices
Over the last decade, there has been a fundamental shift within the fixed-income landscape. These changes have provided alternative investors the ability to accept risks associated with illiquidity funding. Below are some of the common benefits of using some of the newer alternative choices that many small businesses can gain.
Many small-business owners can find themselves in do-or-die situations where they need money quickly to stay in business. Alternative lending options online offer a way for customers to receive funding quickly. Depending on the type of loan applied for, funds can be obtained in a matter of days instead of weeks compared to traditional loans from banks and credit unions.
The Importance Of Quality Of Credit
According to a recent study, more than 70-percent of loans requested from lenders were to reduce credit card debts or to consolidate debts into one loan. The second-leading reason for loans was to help pay off mortgages or complete home remodeling projects. During the study, it was found that borrowers who have high credit scores and low debt-to-income ratios are considered low risks. The study also concluded that it is important for traditional lenders and online alternative lending institutions to screen their borrowers to reduce their overall risks.
Reason For Changes And Optimism
The changes in the lending landscape came as a result of a financial crisis and changed the way small businesses gain capital and obtain loans for business purposes. It has been seen that traditional sources of capital from both small and large banks have not returned to pre-recession levels as of yet.
Because of this, regulators and lawmakers have had to make changes to policies. It is often seen during transitional times and the emergence of market opportunities that online lenders begin to step-up and leverage those market opportunities. When looking ahead to the future, there are many reasons for optimism when it comes to lending options for small businesses. As innovation and technology continue making changes within the marketplace, small businesses are the ones who will gain the most benefits.
Diversification Benefits For Lenders
For lenders, there are also many benefits to be gained from alternative lending options. With a shorter loan duration and higher yields, these new loan types can also provide diversification. The main reason behind this is the correlation pertaining to the equity markets being low. The exception to this rule is when unemployment begins to rise dramatically. As an example, January 2016 saw a rise in equity markets. There were no additional downturns in the economy, however, which could have caused the rise in consumer defaults by any significant amounts.
Many small businesses owe their success to these alternative online lending options. Other strategies for raising capital, such as investing in high-yielding bonds, car title loans and dividend-paying stocks, can expose business owners to higher risks of default. These risks can be the downfall of many small businesses.