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Alternative lending: Ideal for different types of business needs

Mar 22, 2013 Simon Williams

Alternative lending: Ideal for different types of business needs

In the United Kingdom, small and medium-sized enterprises' (SMEs) need for funding has reached a dire status. The Bank of England's Funding for Lending Scheme (FLS) has, at least to this point, been a bust, with net lending dropping £2.4 billion year over year.

"It is pretty clear that the FLS is not living up to expectations," said Michael Saunders, chief western Europe economist at Citigroup, according to Bloomberg. "While mortgage lending spreads have fallen, lending is weak and credit availability for business is poor."

Banks have understandably become more moderate in the wake of the recession, lending only in instances where they believe they will be paid back quickly and in full. Any company that has anything close to a subprime credit score is likely having a hard time receiving funding.

This is where alternative short term lenders come into play. By using Payment Reporting Builds Credit scores, which look at different information like a strong history of utilities payments, a lot more businesses have access to funding.

Different types of alternative strategies

One of the advantages to alternative lending, in addition to greater accessibility, is how flexible these methods are. Financial institutions are less likely to lend to companies unless they're requesting large sums of money for specific purposes.

Alternative lenders, on the other hand, will push through loans for seemingly any amount or use. In a recent blog post for SmallBusiness, MarketInvoice co-founder Anil Stocker discussed some of these methods, outlining two in particular: peer-to-peer lending and crowdfunding.

- Peer-to-peer lending: This involves companies with finances to spare lending to businesses in need of funding. Oftentimes, these loans are exchanged via the internet, making them available extremely quickly.

- Crowdfunding: Also available online, crowdfunding involves sites that collect a number of small investments, which are then given to SMEs and startups.

It will likely be some time before banks start lending to smaller firms again, so SMEs shouldn't hesitate to take advantage of what alternative lenders have to offer.