The alternative lending industry to which merchant cash advance lenders belong is a growing industry of digitally based lending platforms for different borrowing needs. The needs of small and medium scale enterprises are often given priority in this industry. In the last ten years, the alternative lending industry has witnessed so rapid a growth that it has become the subject of much discussion and speculation. This owes in part to the fact that the use of technology in the industry to simplify and expand consumer access to capital has been viewed as a major threat to traditional lending institutions.
What is it that sets alternative lenders apart from traditional financial institutions?
Merchant cash advance lenders epitomizing all that the alternative lending stands for, provide end to end loan experiences to small business owners through digital delivery. Right from the process of application all through the process of underwriting and servicing every step appears to have been made digital. This enables alternative lenders to perform the credit underwriting process, approving or declining an application for a loan in real time. What is termed a borrower’s risk score is the criterion that enables alternative lenders to make such split-second decisions. It is this efficiency, scalability, and digital capacity that make merchant cash advance lenders, for example, to stand out from commercial banks.
What are the indices of growth of the alternative lending industry in general?
No longer do businesses have to wait several weeks to process loans. This is quite important in a world where business is now done at a speed which could only have been imagined a few years earlier. The immediate impact of alternative lenders can be judged by how much the industry has grown in the last couple of years. In the United States, the alternative lending industry which is being led by merchant cash advance lenders has continued to grow. The same is also true in countries like Canada, and in places such as Latin America and the Caribbean.
In 2016 the alternative lending industry in these places that were earlier mentioned had grown to have a total market volume of $35.2 billion. This was quite significant as it marked a 23 percent increase from the previous year, 2015. This growth was said to have been driven by growth across all other segments of America`s economy. The united states, however, continues to be the world`s top market for such advanced technology e=driven, online alternative finance channels. This explains why merchant cash advance lenders are in the thousands and distributed across the United States.
How are traditional lending institutions responding to the so-called threat of merchant lenders?
From a market share perspective, one might tend to view alternative lenders as insignificant threats to traditional financial institutions. But discerning institutions think otherwise. The rapid change and growth of alternative lenders, in general, is something that has come to be of concern to more than a few traditional lending institutions. Banks, in particular, have sought to expand their offerings through a partnership with, for example, merchant cash advance providers. Some banks have also sought to come up with online lending initiatives that will mirror merchant cash advance closely. They have also tried to improve the experience of customers—which is subpar with of alternative lenders—in a bid to stem the competition.
What are the Core competencies of Alternative Lenders?
From all indications, it appears that alternative lenders have built their base around a set of core competencies which is exactly what has been responsible for the sustained growth of the industry in the last decade. First things first, alternative lenders have made it a priority to keep simplifying the process of obtaining funding while ensuring the customer experience is also simplified. Big data and analytics are also some the core resources used to target underserved customers. Also, merchant cash advance lenders and a host of other alternative lenders recognize that to stay afloat costs of the finding must be lowered while competitive pricing will be offered.
Why exactly is alternative lending attractive to small businesses?
To understand why it is that small businesses are gravitating towards alternative lending it is necessary that we examine a major source of alternative lending—merchant cash advance. Merchant cash advance is the most popular source of alternative lending for a good reason and it is what comes to mind when alternative lending is mentioned.
One of the biggest reasons small businesses opt for merchant funding is that it provides them with access to unsecured loans. There is no doubt that the prospect of obtaining a loan without having to provide collateral will be appealing as the inability to provide collateral is one of the main reasons small businesses are denied loans. If not also for merchant cash advance lenders most businesses with a poor credit score would have a very hard time trying to obtain funding from traditional institutions. In most cases, this might not even be possible. These are the top two reasons small businesses are drawn to alternative lending, but there is more.
Ever since the emergence of merchant vendors the whole level of uncertainty associated with obtaining loans has been drastically reduced. Relying on powerful algorithms also meant that human error had been removed from the process of underwriting loans. The net effect of this has been that businesses are almost certain that funding would be obtained as long as some of the less stringent requirements have been met. In short, the approval rate of merchant cash advance is known to be somewhere around 95 percent. This is remarkable, especially when compared with that of banks which is around 40 percent.
Having looked at the alternative lending industry, and particularly the dominant role of merchant cash advance lenders in it, one gets the picture of an evolving industry driven by a subsector— merchant cash advance. This picture, while it is bound to change, is one that represents the current state of the alternative lending industry.