Alternative lending is an explosive industry driven by ever-growing innovation and the need for diverse access to capital. Where lending used to be driven solely by private banks and wealthy independent investors, borrowers now have significantly more diverse options when it comes to acquiring funding.
Alternative lending is any lending practice outside of a traditional banking institution. Non-bank lenders may participate in marketplace lending. This system partners business owners with established investors that are willing to provide the capital needed by businesses.
As alternative lending has grown as an option, it has also diversified significantly. There are multiple various types that range from peer to peer platforms to more traditional institutional lenders but with more flexible abilities. Similarly, loan types are experiencing a diverse range. They may be paid out in the form of traditional mortgages, payday loans, or loans paid in cryptocurrency.
With alternative lending continuing to shape to state borrowing, we’re sharing 3 expectations for the future.
Profitable Investments
The world of alternative lending is particularly enticing to investors that are after a higher reward at the expense of experiencing greater risk. As such, many hedge funds that were players in a more traditional setting are not moving to participate in the alternative lending field as well.
Daniel Wessels, CEO of Jacaranda Finance, says “They’ll be able to benefit from the attractive yield and short duration, which means there’ll be some insulation from rising benchmark interest rates.”
Big Data
Big data plays a role in all aspects of the financial technology industry, alternative lending included. Over time, more and more tasks and processes turn to technology for optimization and automation. As such, many companies have begun to utilize big data as a resource to determine borrower’s creditworthiness rather than using more traditional means to make that determination.
Big data allows investors to evaluate thousands of data points at the click of a button, enabling them to make better-informed decisions and more accurately assess the risks associated with a given investment. The collection of big data also allows lenders to evaluate the creditworthiness of borrowers in nontraditional ways. As a result, a borrower that may have previously been a poor investment based on previously available data may have an increased likelihood of receiving a more desirable loan based on this new form of data analysis.
When we say that big data is an unconventional means by which to analyze data, we aren’t joking. Some lenders have started to look at what may seem like randomized data points to draw conclusions about borrowers. This may include the way they shop, the games and online activities they participate in, and even how they organize their contact lists.
While these data points may seem odd from the outside, they may help lenders draw conclusions about who a borrower is and whether or not they or their business are a worthwhile investment.
Diversified Industry Investments
Traditionally, certain industries were seen as more desirable to invest in than others. While the financial and investment industries have rapidly changed, this stereotypical categorization of industries has not kept up.
For example, the cannabis industry is seen as one that over time continues to have challenges receiving funding from traditional bank loans. Part of this, of course, is due to the fact that cannabis is technically still illegal on a federal level despite being legalized on a state by state basis.
While the cannabis industry continues to face difficulty in being granted loans the old fashioned way, alternative funding has lent the industry a huge helping hand. The increased availability of investors and funds willing to take higher risks for the chance at a higher reward is a huge opportunity for the cannabis industry and has helped with its continued growth.
While the risks associated with these investments continue to grow in association with the ever-changing landscape of the industry, alternative lending creates the perfect playing field for these deals to take place.
Over time, the alternative lending field is expected to continue to grow as we have seen thus far. As we continue to see the benefits it provides, as mentioned above, traditional lending consisting of juggling various old school banks and jumping through a series of hoops feels like a thing of the past.
At Innovative Capital, we utilize a network of banks and in-house private capital to provide our clients with multiple solutions. We are committed to helping our clients achieve their financial goals while also protecting the assets of our investors. If you or your business are in need of capital and don’t know where to start, give us a call to get started.
