Unlike large enterprises, small and medium enterprises (SMEs) are more affected by different regulations that create problems to start a new business. Further, large companies, owing to the sheer size and other factors, can access several options like collateral, cash flow, and equity funding, which are not possible for SMEs. In Australia, the majority of companies are SMEs and to overcome the inherent inefficiencies in the bank lending practices, Australia provides the best business-friendly alternative lending option to SMEs.
Alternative Finance- an Overview
Alternative finance provides a wide array of loan options, to entrepreneurs, startups, small businesses, and other consumers. Stretching beyond the traditional financing options like stocks, cash, and bonds, alternative lending has several advantages like quick approval, flexible terms for repayment, and fast funding. Such kind of loans are preferred by SMEs, due to frequent rejection of conventional loan applications in banks owing to several reasons like an improper model of business, or bad credit history, and more.
Alternative Financing Advantages
In traditional lending system, banks offer loans to business owners having high credit history backed by collaterals. Many SMEs find difficulty to meet such obligations for securing a loan and opt for an alternative lending option. Contrary to bank loans, alternative lenders extend loan offers without being critical about the plan for using the money.
Alternative lending extends instant funding to businesses even with low credit rating and is very easy to secure. Further, for commercial uses, alternative lending can be the best option for small and medium enterprises. Business owners wanting to cover the business expenses can find such financing option to be the best.
Alternative financing has continued experiencing steady growth in Australia, even though the main source of funding is banks. It is because the majority of Australian businesses are SMEs that encounter problems with traditional financing that prompts to opt for an alternative source of funding.
Working Mechanisms of Alternative Financing
Alternative lending brings together the lenders and borrowers in a common platform and preferred by borrowers due to several loan options, less rigid qualifications, and quick approval process. The working mechanisms for lenders and borrowers in alternative lending process are as follows.
Alternative lending for borrowers:
Borrowers requires submitting details for a loan to the preferred lenders and seek approval. Usually, borrowers come to know about the status of the applications made within 24 hours and further, start accessing funds in the respective business accounts. Subsequently, the borrowers start paying off the loan amount, based on the previous agreement.
Alternative lending for lenders:
Lenders receives several types of loan applications from the prospective borrowers that get assessed subsequently. Further, the credit history of borrowers might get assessed for determining the risk of lending. In case of satisfactory assessment, the business loans are sanctioned and funds are made available to the lenders.
The alternative lending option will continue to remain very helpful for SMEs, to fulfil the need for a loan. At present, several SMEs are increasingly opting for alternative lending, which is forecast to grow very fast in the near future.