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Individuals, small businesses should seek alternative lending

Jun 05, 2015 Sean Albert

Traditional lenders like banks often decline to offer financing to startups and small businesses due to insufficient or suboptimal credit scores. These companies can blossom into great assets for the economy, but they are frequently judged based on past performance and capital, rather than potential for growth and development.

Similarly, people with poor credit histories are also ignored by big lenders. The Consumer Financial Protection Bureau found that 45 million Americans fail to meet the criteria to be considered creditworthy. This renders these people invisible to major credit reporting agencies, and, therefore, immediately disqualifies them from receiving loans from traditional sources.

That's where alternative lenders come in.

Companies can achieve their goals and continue to expand


Many small business owners submit to the idea that if a big bank denies them financial assistance, they are simply out of options. But, as Business 2 Community said, this is an entirely misguided notion. Alternative lenders exist to offer financing to applicants who do not fit the strict criteria of traditional loan providers. The source noted that there are a variety of different options available that do not require a high credit score.

B2C also noted that while a common perception of alternative lenders is that they are not affordable due to high interest rates, the reality is that the increased demand of these services has driven the price down, in many cases. Not only are rates now competitive with those of the traditional banks, but the process of gaining approval and actually obtaining a loan is much faster with alternative lenders.

These advantages can help small businesses gain traction and grow to new levels. For those with low or nonexistent business credit, it can be impossible to get financial help from banks. But there are still opportunities for such companies to expand with affordable loans from alternative sources.

The number of people who are not loan-eligible by bank standards is huge
While small businesses may suffer from a lack of credit history, there are also millions of individuals who either have poor credit or do not even exist in the eyes of the major credit lenders. The CFPB reported that 19.6 million Americans have credit histories that are deemed insufficient to generate a score. This group is joined by approximately 26 million people who are considered credit invisible.

These numbers are indicative of an opportunity for alternative lenders. Since banks have rendered these individuals ineligible to receive a loan, alternative providers therefore have little to no competition. People need assistive funding for a variety of reasons - mortgages, sending a child to college, paying off debt, etc. While big banks tend to overlook those who are unqualified by their criteria, alternative lenders can provide a necessary resource for them.

Traditional lenders are hesitant to approve loans for people and companies without exceptional credit histories, which has actually created a niche for alternative sources to fill. As small businesses look to grow and people attempt to pay for life investments, they should explore different options and see which works best for them. If the bank is not receptive to giving them funding, they can find solace in alternative lenders.