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Alternative financial services continue to spread

Jul 30, 2013 Sean Albert

Since the financial crisis, alternative lending has moved into the forefront of the small business financing market, especially as more methods of accessing necessary funds continue to manifest. Entrepreneurs, as well as larger companies, have a larger variety of options when it comes to working capital loans and other financing needs than ever before.

For this reason, small business owners should never jump on the first option that appears, but should rather shop the market and conduct thorough research to ensure they are getting the best possible deals on the loans. The Internet has been one of the biggest platforms responsible for growth in the alternative lending sector, especially for options such as crowd funding and short-term loans.

Online lending moves into the purview
Entrepreneur Magazine recently explained two types of online lending that all small business owners should at least consider when applying for financing. Though the rates on these loans will be higher than those from the U.S. Small Business Administration, they are much easier to obtain, are approved more quickly and can now provide entrepreneurs with longer terms.

According to the news provider, short term online loans often have terms of between three months and two years, while the average amount is between $5,000 and $150,000. Several studies indicate that the vast majority of loan applications among the nation's financial institutions and alternative lenders are for amounts less than $100,000, which illustrates how these options can fulfill the needs of the average entrepreneur.

The source added that micro-loans are hard to obtain from banks, but are often necessary and can be received by contacting alternative financial services providers. Further, these loans will be disbursed more quickly and those approving the loans will often accept applications from individuals with relatively bad credit. All of these reasons make short term online lending a viable option for small business owners.

Entrepreneur Magazine added that long term online lending is becoming more popular, and is beginning to take some of the steam out of the traditional financial service market. The news provider asserted that these loans are often between $25,000 and $250,000, while the terms will last between 24 and 48 months.

Why alternative financial services?
The latest Biz2Credit Small Business Lending Index revealed that loan approval rates among alternative lenders continues to be much higher than those of large financial institutions and small banks. This trend has been consistent for more than a year, with alternative financial service providers approving more than 63 percent of all applications in each of the past 12 months.

This is compared to 16.9 percent approval ratings among big banks and 49.8 percent from smaller financial institutions. One of the most commonly cited reasons for the bolstering alternative lending sector is the use of technology.

Alternative lenders, especially those that operate online, leverage advanced technology to better manage risk and finalize approvals more quickly than institutions that use antiquated methods. Small business owners can gain enjoy a variety of benefits following a jump into the alternative lending game.