Alt Lending: There’s No Alternative to the Fundamentals

It’s no secret that small businesses are chronically underfunded. That’s despite entrepreneurs accounting for 99% of US companies, 54% of total sales, and 55% of all jobs, according to the US Small Business Administration. However only half of small businesses with $100,000 to $1 million of annual revenue received at least some of the financing they applied for from large banks in late 2015, Business Insider reports.

Here, we’ll look at the digital alternative lenders entering the market to fill that niche. As so-called Fintech (financial technology) firms gain market share, we believe that fundamental principles like real relationships and prudent financial structures will always form the foundation of a lending company that’s built to last.

Alternative lenders, which use digital platforms and machine learning to extend credit, are on the rise. They include online startups like Lending Club and represent a new breed of lenders competing for the estimated $96.5 billion in loans banks left unfulfilled in Q4 2015, according to BI.

As we’ve discussed in previous blogs, the rise of Fintech (financial technology) is fraught with risks from data security concerns to impropriety amid slowly evolving regulations. Alt lenders originated $5 billion and had a 4.3% share of the US small business lending market in 2015, but BI estimates that those figures will grow to $52 billion and 20.7% of the total US market by 2020. The path to that growth could indeed get bumpy.

“The alternative lending industry is hitting turbulence as it attempts to overcome its biggest challenge — securing capital for loans from investors as other assets become more competitive from a risk-return perspective,” writes BI. “Or in other words, marketplace lenders are at a disadvantage to balance sheet lenders who originate and hold loans on their books.”

For us, this is a key distinction that we’ve hit on before. Keeping loans on your books (like we do) means you have skin in the game and signals commitment to making each lending partnership successful. With both marketplace (aka peer-to-peer) lenders and balance sheet lenders entering the alt lending marketplace, we’re confident that Fundamental offers a superior alternative to both. We’re a trustworthy partner that’s accessible and principled- a reliable resource invested in your success. Not simply an online platform.

Contact Fundamental today if your company or clients need a reliable lending partner committed to empowering entrepreneurial vision.