Alternative Financing vs Traditional Financing

Published: 21/05/2018

Myths about non-bank financing exposed

Many preconceptions about non-bank/non-traditional finance exist. The alternative finance sector is not only a crucial part of the marketplace, filling space traditional banks have ignored, but offers a more efficient alternative to traditional lending – which is often costly and inconvenient.

Myth #1: The alternative finance sector is untrustworthy.

Debunked: Alternative finance providers are just as creditworthy as the banks, and some alternative finance providers have released anonymized loan data – certainly a traditional bank wouldn’t even think about sharing this information!

Myth #2: Peer-to-peer lenders won’t work with uncreditworthy companies.

Debunked: Alternative finance providers are continuing to use many different forms of diligence to understand your business. Although we can’t comment on the processes of others in the industry, our business model, specifically, means we analyze the risk of your customers as well as your business. So even if your company has struggled in the past, and a bank loan is not an option, that doesn’t mean that you will be locked out of receiving the financing you need to succeed in the future.

Myth #3: Non-bank financing is expensive.

Debunked: Non-traditional finance providers offer the lowest interest rate for unpaid/late invoices on the market. The rate clients receive is the best offered given their business’s circumstances. Invoice finance through a peer-to-peer platform outperforms business loans by leaps and bounds.

Myth #4: Non-bank businesses are not financially secure.

Debunked: It is as simple as this – the alternative finance sector must comply with the same consumer credit rules and regulations as any bank. Many non-bank lenders are financed by savvy financial institutions, which are keen to get involved in the alternative finance sector.

Myth #5: The alternative finance market is a fad.

Debunked: KPMG’s Alternative Finance Report, written in September 2017, has found that “Australia’s US$610 million alternative finance market including peer-to-peer lending and crowd-funding has grown 53 percent over the past 12 months, to become the second largest market in the [Asia Pacific] region.” More and more businesses are moving to the alternative finance space, which provides cheaper and more efficient ways of managing cashflow. Invoice trading was the third largest segment of Australia’s alternative finance market, at US$130 million, growing by 16% from last year.