Short term lenders provide funding to underserved demographics

For the most part, people with insufficient or poor credit histories are often not granted access to loans due to apprehension on the part of the lender. But people in this demographic tend to need immediate funding to help them through unexpected circumstances or temporarily keep their businesses afloat. In many cases, those seeking short term loans are scheduled to receive a payment or paycheck, but require access to capital immediately and cannot afford to wait.

Alternative lenders offer new opportunities for funding

While attempting to borrow from banks has often proven to be futile for those deemed to be "high-risk" applicants, alternative providers have stepped in to offer quick, easy funding for people in need. And, according to the owner of a lending startup, borrowers can actually begin to build positive credit scores by making timely payments on short term loans.

The Financial Times reported that Sasha Orloff, who founded LendUp in 2012, sees multiple benefits for short term lending. In addition to the obvious - providing accessible, fast-tracked funding for people who need immediate financial assistance - Orloff said he also believes that, as borrowers pay back their loans, they can begin to accumulate positive credit. This can potentially open up new financial opportunities for them in the future, such as receiving long term loans with better interest rates and being approved for house or auto financing.

Questions to ask potential borrowers before distributing capital
The Advisor remarked that short term lenders need to be aware of the risks that are inherent in the industry. The source noted that there are several factors that are often overlooked by lenders, and that concerns can be alleviated by following protocol and asking certain questions during the approval process.

For example, lenders sometimes neglect to address issues such as the amount of capital requested, the purpose for the funding and the intended method of repayment, The Advisor suggested.

The source said that while it might seem obvious to ask for a specific number, some providers only require a rough estimate, which can make the process less accurate and might not necessarily reflect the circumstances. Likewise, it is wise to require that the applicant notes the purpose for which the money will be used, as this can give insight into the potential return. For example, if a borrower wants additional funding to buy a boat, the lender might not receive repayment as quickly as from a small business owner who is investing in products or services intended to increase the profitability his or her company. It is important to note that this practice is not legal everywhere, so lenders should check local laws pertaining to such actions.

Short term lending offers a necessary service for largely underserved demographics, but it is important for lenders to understand the intricacies of each individual situation. At its best, providing funds to low income people or those with insufficient credit history can be a platform from which they can make the jump to sustainable financial stability. To ensure the likelihood of this occurring, it is vital that the application process be treated in a thorough and precise manner.