Using Alternative Lending to Fund Investment Opportunities

As banks continue on a path of making traditional lending less accessible to the greater public, alternative lending continues to fill that demand. Some hear the term alternative lending and immediately associate with small-scale, short-term options like a car title loan, but it is actually much more than that. In both personal and business finances, alternative lending can be the right solution to get the capital you need for an investment or business venture. These loans can be for small and large amounts and extend over both short and long terms. These advances can help launch a startup, provide a business with the cash flow it needs right now or give a person the money needed to invest in a promising opportunity and earn a great return.

The Bank Was Always an Intermediary

The challenge some have in accepting alternative lenders lies in their perspective: The bank isn’t an option any longer so we have to take the additional risk of a substitute. However, the alternative lender really isn’t a stand-in. After all, the bank has always been a middleman between borrowers and those who had money to invest. Some entrepreneurs and businesses seek out alternative lending even when the banks are an option. The benefit here is removing the additional expenses of an intermediary while also eliminating slow processes and bring together pools of investors beyond what a bank would be capable of.

Peer-to-Peer Lending

The Internet has also greatly enabled what is known as peer-to-peer or P2P lending. In the computer world, P2P refers to a distributed architecture that shares workload across many clients. If you want to download a large file, for instance, you may connect to hundreds of clients who all provide small pieces of that file. P2P lending and investing works similarly and is facilitated via P2P lending platforms. The capital you need for a venture with moderate risk, for example, can be distributed across many small-scale lenders who only lend a little and therefore reduce their exposure to the risk in a significant way.

Knowing What You Want and How to Ask for It

In traditional borrowing experiences, borrowers would shop around to various banks and, in doing so, get context and then, make a decision within that framework. Alternative lending can work this way at times, but it also gives you to chance to make a proposal and market yourself accordingly. The advantage here is that you may be able to get an amount or interest rate that a bank would dismiss out of hand simply because you’re able to make a sound enough business argument in favor of it. For many small businesses and new entrepreneurs, this is uncharted territory and forces them to think about the challenges they face in different ways.

Shopping Around for Alternative Lending

Don’t throw away everything you know about borrowing and investing. There are numerous options and various pools of investors out there, and you probably won’t find the right fit on the first attempt. If your investment is small and you’re borrowing as you would for a car from a bank, then request that money from at least three distinct entities so that you gain an appreciation for the going rate. If your investment is larger, you may need to seek the capital you need across different lending platforms, and don’t be afraid to cater your proposal to a particular platform. This kind of borrowing will be a learning process for most, and you can adjust your initial proposal after publishing it based on the feedback you receive. You should also be willing to borrow from multiple sources in order to get the capital you need. After all, this concept of distributed lending can work for you in a number of different ways.