Non-bank and alternative lending companies are actively competing against long-established banks.
And they are rapidly gaining an edge thanks to the innovations, desirable loan terms, and service models built to appeal to clients who’ve not secured funding from banks.
Below is a guide to the most common forms of alternative lending in the United States.
Developments in Alternative & Non-Bank Lending
Forty percent of consumers are positive non-banking institutions that can assist them with personal finances and investments, according to the Oracle Digital Demand In Retail Banking survey.
The study interviewed over 5000 consumers across 13 nations. Other findings show 30 percent of customers who’ve not used an alternative lending platform admit they are willing to try it.
Alternative lending companies appeal more to small and mid-sized businesses. 2018 alone saw a large gap— $5 trillion (as stated by the SMBs Finance forum) between small businesses funding needs and what they could access in banks.
Non-bank lenders rely on techs like AI and machine learning to gather Business data & Consumer data. Banks that ignore these technologies may face tough competition from new lenders.
Meet the Most Popular Alternative Funding Sources
Here’s a list of the non-bank sources that offer instant funding when you need it.
- Small Businesses Alternative Loans
Banks often turn down loan requests from small and mid-sized firms that fail to comply with the strict criteria. Non-bank credit firms step in to assist.
In 2016, the alternative lending sector approved an entire 71 percent of small business requests, according to the Fed Reserve. Banks only accepted 58 percent of all received loan applications.
- Alternative Mortgage Loans
Slow manual processes and strict requirements in bank mortgages have led to the rise of non-bank mortgage loans.
A Business Insider Intelligence report reveals that the top 5 US banks—Wells Fargo, Bank of America and JPMorgan Chase, US Bancorp, and Citigroup – collectively disbursed a total mortgage loan volume of only 21 percent, a significant drop from the 50 percent in 2011.
Non-bank lenders now offer similar services at better interest rates, more forgiving underwriting processes, and favorable terms
- Peer to Peer (P2P) Credit
This is a form of lending where the issuing and receiving of loans occur directly between individuals— no banks or intermediaries are involved.
P2P borrowing and lending happen in online platforms where a user can sign up either as a lender or borrower.
Most of the funding here are uncollateralized loans (disbursed and received by people). However, sometimes a legal framework guides the entire process.
The non-bank alternative lending sector is disrupting the lending environment in ways we never imagined before.
Consumers searching for alternative loan products must double-check terms before taking out financing.
Michael Hollis is a Detroit native who has helped hundreds of business owners with their merchant cash advance solutions. He’s experimented with various occupations: computer programming, dog-training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.