Lachlan Heussler, Managing Director, Spotcap Australia
In the past decade the banks have distanced themselves from small business lending and non-bank or ‘alternative’ lenders are increasingly servicing this need.
But what is alternative lending and what’s all the fuss about? Here is a quick rundown of how the alternative lending market works.
How does it work?
Alternative lending is a broad term which includes the wide range of loan options available outside of traditional banks. It’s quite a simple process – businesses which want to borrow money apply online by entering some personal and business data.
Every alternative lender has its own requirements but what they have in common is speed. Nowadays, applications can be processed online within 24 hours.
If approved, a credit line is issued and the business walks away with finance at an agreed interest rate and repayment schedule, as they would with a loan from the bank.
What’s so great about alternative loans anyway?
Alternative lenders exist to finance small businesses when the banks can’t or won’t. They’re supporting growth, innovation and the economy. But above all, alternative lenders have tapped into the wants and needs of small business owners and that is reflected in their policies and procedures.
These lenders have simple, online application processes, often without any paperwork and they can process applications quickly – generally within 24 hours. This means you can access finance when you need it. Alternative lenders provide greater choice, access and flexibility to small business.
Do I qualify?
Qualification requirements vary between lenders but most require a minimum annual turnover (with Spotcap this is $50,000) and financial documents to show cash flow over a specific time period (with Spotcap this is 12 months).
Because non-bank lenders use cash flow to assess an application, most won’t lend to startups. Read this blog to find out more about starting a business on a budget.
Isn’t it more expensive, are there hidden fees?
While alternative loans may have slightly higher interest rates than the banks, the truth is they fill a serious gap for small businesses who aren’t able to access funds from a traditional lender.
When it comes to fees, it is good practice to read the terms and conditions carefully before committing to any financial product. Be sure to select a lender that doesn’t charge a fee for the application itself. Originations fees to draw down from your line of credit are more common and typical start at around two per cent of the amount of money you borrow.
How long will I be locked in?
Six or 12 month repayment schedules are common but some lenders may charge a fee to pay off the loan early. If you think you might want to repay the loan quickly, be sure to select a lender with no fees or charges to do that.
Again every alternative lender is different so be sure to read the terms and conditions carefully.
Any tips for a beginner?
Only borrow what you actually need and make sure you can afford the repayments – like any loan, if you fall behind you will wind up paying more.
Other than that, do your homework, find the best lender for your business and always read the terms and conditions.
About Lachlan Heussler
Lachlan is the Managing Director of Spotcap Australia and has more than 15 years’ experience in financial services, both in Sydney and New York. He has witnessed the profound impact technology can have on financial services and is passionate about using technology to support Australian small business.
About Spotcap Australia
Spotcap enables small business owners who have been operating for more than one year to grow their business by providing fast and flexible financing. The company has developed a sophisticated and dynamic online decision process assessing the real-time performance of businesses to grant short term business credit lines and loans.
Read more about Spotcap: www.spotcap.com.au