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Various factors boosting alternative financial services industry

May 07, 2013 Sean Albert

Business owners often cite access to credit as the most crucial component of maintaining successful operations and expanding hiring opportunities. For this reason, government officials have largely focused on enabling higher commercial loan disbursement volumes in the past few years, as this will likely improve a variety of other economic components including employment rates.

In the years following the Great Recession, commercial lending has seen dramatic ups and downs, especially from the nation's biggest financial institutions. However, a variety of catalysts have increased demand for and supply of alternative financial services, as non-traditional lenders have picked up the slack left by bigger banks.

Though financial institutions are now beginning to strengthen commercial loan disbursement volumes, demand for alternative loans continues to increase consistently. Business owners should always research all of their options when it comes to loan acquisitions, as the best choices will vary depending on the specific needs of the company.

Lending on the rise
Hotel News Now recently reported that both traditional and alternative lenders are announcing plans to increase disbursement volumes in the coming months. According to the news provider, larger financial institutions are beginning to create new options to compete with the growing number of lenders in the market, though it has been difficult.

Alternative financial service providers have consistently higher approval ratings, largely because of the less-stringent requirements and terms. For example, the most recent Biz2Credit Small Business Lending Index found that while big banks had a 15.7 percent approval rate in March, alternative lenders remained above 63 percent for the ninth consecutive month.

Smaller banks have improved their approval rates in the past several months, but still lag far behind alternative lenders. Hotel News Now explained that competition in the lending market will likely continue to heat up, as alternative lenders give the biggest financial institutions a run for their money more aggressively than ever before.

"Metrics have continued to improve; there's so much more capital flowing into the sector," Israel Lopez of one major bank told the source. "We're competing against a lot of new entrants into the market and banks that had scaled back are re-engaging and expanding their platforms."

Experts believe that one of the biggest reasons for the higher approval rates among alternative lenders is their use of advanced analytics technology. Alternative lenders have approached new tools and information channels more proactively than their traditional counterparts, and have enjoyed more success as a result.

Other factors boosting alternative lending
Earlier this year, CFO reported that the recent sequestration put in place by the federal government, which many feared would put extreme pressure on the economy, will actually strengthen the alternative lending sector. According to the news provider, small businesses have been responsible for a high rate of alternative loans, and the recent budget cuts will only increase the use of such products among these borrowers.

The source added that the budget cuts will also likely positively impact competition in the lending market, which will lead to better options for executives of small and large businesses.