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The cat is out of the bag. Alternative lending is here to stay.
As traditional banks become more restrictive in their approval process, more and more people are turning to non-bank options to get financing. What’s more, consumers can choose from a variety of non-traditional loan avenues. These include peer-to-peer lending, crowdfunding, and factoring.
But like anything new and unfamiliar, some misconceptions plague the alternative lending industry. Our goal in this article is to address these misconceptions and invite more confidence in the industry.
The Application Process Is Long and Tedious
A fundamental assumption, whether you need a loan for business reasons or for personal ones, is that you’ll have to go through a tedious process. In other words, you believe it will take a while from the time you submit an application until you receive a response.
Luckily, you won’t have to go through that hassle with alternative lending. With the help of technology, many of these lenders use apps and online platforms.
For example, a third-party review of 5K funds states that using an online lending platform will allow you to choose from a range of offers from their partner lenders. The application process is convenient, and you could get an approval within minutes.
You Only Apply for Alternative Lending If a Bank Rejects You
Some applicants do indeed turn for approval to alternative lending after a bank declines them. But there are also excellent reasons why some would make alternative lenders their first choice over banks.
For one, these lenders judge you less, are more flexible, and respond quickly to your inquiries. Moreover, many of these lenders offer unsecured loans. This is perfect if you don’t have collateral.
Lastly, with alternative lending you can choose a repayment option that works for you.
Alternative Lending Is Not a Regulated Industry
Another incorrect assumption about the alternative lending industry is that these lenders do not have to comply with capital requirements such as banks must do.
It is essential to understand that unlike banks, alternative lenders do not offer the same services as traditional banking institutions. Alternative lending operates under a different business model and capital structure.
Nevertheless, these companies must still adhere to federal regulations. This is especially the case when it comes to customer disclosure and transparency.
You Get High Interest Rates with Alternative Lending
Some people are wary when it comes to applying for loans online. It is true that there are some unscrupulous lenders out there. However, that doesn’t mean you won’t find an honest lender and a good deal with alternative lending.
If you have excellent credit, chances are you will get a reasonable interest rate. Similar to traditional lending, extending credit to someone without security and with poor credit entails risks. As such, it is possible to pay higher interest rates in these instances.
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Lenders Use Algorithms That Lack the Personal Approach
Online lending platforms do use sophisticated algorithms to find the best offers and lenders that best fit your needs. Yes, you may no longer need to speak to a loan officer personally. However, these algorithms make the process of alternative lending more efficient and convenient.
On the other hand, if you prefer to get in touch with the lender, there are contact channels available so you can build a better business relationship throughout the application, approval, and repayment process.
If your business is experiencing cash-flow issues, or if your personal debts have gotten out of hand, consider alternative lending for a loan that can get you back on track with your finances.