Alternative financing is rapidly gaining significant traction in the Australian financial market in recent months. The growth of alternative lending in Australia is primarily due to the need for businesses and entrepreneurs to access flexible and quick financing. With the Fin Techs and Traditional lenders coming together, alternative lending is driving towards consolidation in Australia.
Alternative Lending- An Overview
Alternative lending is a financing option for funding to individuals or businesses quickly. In alternative financing, different institutions come with varieties of offers like invoice financing, peer to peer loans, and R&D financing, and more. Several individuals and companies opt for alternative lending for funding for running businesses because of a few reasons.
The primary reason governing the popularity of alternative financing is alternative lenders can work with borrowers requiring quick funding, though coming with a shorter track record and unable to provide collateral. Often alternative lending, though not every time, comes with a higher rate of interest on the loans while providing easy and quick service. Even though traditional banks continue to provide the majority of business lending, the slow rate of market growth and the rigid structure lead to the growth of alternative lending.
Further, alternative lending is faster and flexible and comes with a higher approval rate for a loan as against financing through banks. In the present day, when fintech is finding growing acceptance across the globe, and traditional banks are failing to deliver, alternative lending helps the businesses to become more competitive in the market.
Types of Alternative Finance
Alternative financing comes with several options which is likely to suit the need of any business. The majority of the alternative lenders come with faster and simpler application processes requiring less effort and information. It is possible to get the fund within a few days or a few weeks after an application in case of alternative lending.
Invoice Financing: Compared to traditional bank loans, invoice financing is a much more popular alternative. Sometimes, small business owners suffer from a severe cash flow crunch, as customers take months or even more to remit. In such cases, invoice financing can be useful to get paid instantly by the lender against a small invoice amount percentage charged as a fee.
Equipment Financing: Equipment financing remains a credit option that can be available through traditional and alternative financing lenders. The main feature in such a form of finance is using equipment or vehicle as collateral against the loan.
Non-Bank Lenders: Financial institutions with no banking license but offering long-term loans to the borrowers typically remain the non-bank lenders. Some such lenders come withone-off fees, while some have high APRs, and the non-bank lenders are moreflexible for businesses having a shorter track record.
Line of Credit: Coming with flexible options for loan repayment, the line of credit can be the best option for meeting the requirement of a short-term loan. Such lenders offer easy, stable, and quick loan access and comparing between several lenders before applying for a loan can fetch the best loan option.
Peer to Peer Loans: A P2P loan, originating from the peer-to-peer lending platforms, arranges a loan between the borrowers and lenders. In such a loan marketplace, the lenders choose the borrowers for investing for diversifying a portfolio. For businesses, a P2P loan can be an excellent option without needing to visit any bank.