Many businesses in Australia often find themselves in a limited borrowing capacity. This applies to companies of all sizes ranging from conglomerates to small startups. In Australia, the covid-19 pandemic has impacted business in multiple ways and left many medium and small-sized industries with limited lending options.
Whatever your company’s situation, the capacity to obtain funding when it is required often makes a massive difference. Alternative lending in Australia is growing, and multiple alternatives are available to businesses. Lending the right financial solutions assist firms with less conventional credit profiles to expand and prosper.
What does alternative lending mean?
Alternative lending refers to the many loan choices accessible to individuals and company owners that are not provided by a standard bank loan. In other terms, it is a way of acquiring loans through non-banking financial entities.
Over the last few years, alternative lending solutions have seen a drastic increase as commercial banks refuse to provide financial help to those with incomplete credit statements. The segment witnessed a boost during the pandemic. As the market reopened, businesses went bankrupt or lacked the capital to restart. These companies were unable to secure loans from traditional banks.
Non-banking organisations quickly fill the void by serving the distressed unbanked consumer segment. Alternative lenders employ technology to enter a market that conventional banking institutions have yet to join.
Types of alternative lenders
Various forms of these exist; however, the most common ones are as follows:
- Credit Unions
- Community Development Financial Institutions (CDFI)
- P2P (Peer-to-peer) Lenders
- Marketplace lending
The prime difference between traditional banks and alternative lenders
Alternative banking solutions have made various innovative types of lending available. They offer services such as equipment financing for smaller and medium-sized businesses. By using automated data analysis, they can identify risks more correctly. This enables them to approve loans much quicker when compared to traditional banks.
Integrating their verification checks with technology accelerates the entire process from start to end. Personal details, document verification, KYC details and so on are verified instantly by the system, making disbursing loans a much quicker process.
Interest rates and tenure period
The interest rates charged by alternative lenders is usually higher. Ranges from 5 to 13 per cent; alternative lending is done over a shorter period to complement this increase. This leads to a lower interest amount eventually.
Banks provide loans over 3 to 5 years, while alternative lenders do so for 1 to 3 years. In addition to this, alternative lending in Australia also provides customers with lesser loan values for shorter durations.
The application processes
Applying for a loan is a strenuous one for commercial banks. The entire process is digitised with alternative lenders and can be completed instantly, like signing up for a website.
Predominantly all the tasks are automated, which removes the need for dealing with paperwork from both parties. Since they are technology-driven and can be assessed much quicker, the turnaround times on these applications is much faster.
Even though the COVID-19 epidemic has impacted the loan industry, nontraditional lenders have assisted investors and borrowers. Thanks to the emergence of fintech enterprises and online lending services, alternative financing is here to stay.
Commercial banks still hold the lion’s share of the market for retail financing, but their expansion has slowed. It is now easier for non-banking companies to automate their loan processes. They may effortlessly handle borrowers, customer onboarding, loan disbursement, collections, and other tasks by utilising specialised technologies like CRMs.