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Is alternative finance actually alternative?

Dec 15, 2014 Sean Albert

We're at the point these days when thinking outside the box is encouraged in almost every instance. Sure, going by the book in some industries is still status quo, but by and large, coming up with creative solutions to problems is seen as a great thing. This type of thinking is what leads to innovation, more effective procedures and greater cost-savings down the line.

Those involved in finance have known this for years. Alternative finance is nothing new - people have been inventing new ways to attain money for centuries. However, only recently has this option truly taken off, and that was as a result of need.

The current environment for getting creative
Think about the Great Recession. That wasn't the first time, even in the last 30 years, that the national economy has been tested - but it was when people started realizing that they had a number of weapons in their arsenal when banks all but shut their doors and consumers needed loans.

Instead of relying on the banks that turned them away, people began to seek out cash advances from other sources. The Internet became a big resource, and recently crowdfunding has cropped up as a new and legitimate way to obtain money. However, it was really short term and installment loans that pushed the balance in favor of alternative credit. Consumers could take out sums quickly and easily, and pay them back often on their own terms with some interest.

This essentially revolutionized the fiscal landscape of the United States and allowed many families to stay afloat until the economy stabilized.

Should 'alternative' still be used?
This begs the question, is alternative finance even considered "alternative" anymore, or are these routes so widespread that they should be considered as regular as going to a bank or a credit union?

Bridging and Commercial Distributor recently raised this point, noting that this debate raged on at the United Kingdom's Finance Professional 2014 conference.

"As the traditional sources have continued to re-trench and stifle lending ... short term lenders have taken up the slack," Alternative Bridging Corporation representative Jonathan Rubins suggested, as quoted by the source. "If one looks at the size of certain short term lenders' books, it appears the general public care more about receiving the money than the year the lender was incorporated in."

Rubins also went on to note that he thinks "Effectively, it's all just finance."

While some businesses operating in this industry might still want to be seen as alternative, at least to differentiate themselves from somewhat more traditional options from banks, the fact of the matter is that these offerings aren't rare. Nor are they alternative, in the strict sense of the word - loans of this kind are generally mainstream, and in fact they've become exceedingly common.

As such, players involved in the sector may want to look into their options, especially in regard to advertising more or being seen by credit bureaus in a different light. Perhaps these scoring bodies will start using other sources of data, like utilities bills or rent payments, as evidence of creditworthiness in light of the obvious shift toward the mainstream.