Alternative Financing

With the current economy, obtaining a loan or mortgage for businesses as well as individual have been very challenging

There is a strong sentiment on the start to move away from traditional lending institutions (banks). In fact, traditional lending institutions have become more stringent in they approval process. The credit score needed for approval is higher, in most instances a potential borrower might need a score of 720 and above to qualify for decent interest rates.

At the event that unfolded in 2008-2009 which caused companies to lay workers off, which pushed some companies to close their doors ( Bear stern, Lehman Bros…), consumers and a lot of businesses saw they net worth being wiped and in some cases if lucky being reduced. Credit rating started sinking for a lot individuals and small businesses. Cash became rare; consumers could no longer afford to spend money. Therefore, many industries were affected with a shortage of cash. Loan application started rising as well as declined letters. Traditional lending institutions in need of much needed cash could not afford to extend credit to applicants.

Therefore, the big banks and financial institutions went to the Federal Government for bails out. Using hard earned tax payer money to return to their financial health and go back to their usual ways of doing business. While those big banks and institutions received money to stay in business and be productive, smaller businesses and consumers were not as lucky.

The fed lowered the interest rates but yet, banks refused to lend money, they elected to hold on to the money for their profitability. They raised the approval requirements and offered unattractive rates.

Seeing the way banks acts, Consumer and businesses started looking for alternative financing. Private lenders, Small financial firms, assets based lending…

The alternative lending has been soaring for the past few years. In fact 80% of consumers stated that they will be willing to go obtain a loan from an alternative source of lending whether for a mortgage, a business loan or equipments loan, there is a strong demand for alternative financing.

Companies like Wal-Mart Stores Inc are looking to capitalize on the opportunity. In fact, according to a financial services study, one in three U.S. consumers would consider a mortgage from retailer Wal-Mart and almost half would consider one from online payment provider PayPal. Cotsco is already providing home loans online through select lenders from its retail stores and according to Jay Smith, Costco's director of financial services. 

The current state of the economy has pushed consumers and business to look for alternative financing, which makes it easier to obtain a loans and a feel of direct contact with the decision makers. The lending game has begun to change and we can foresee a trend in the need for alternative financing now.

This article was written by Kadjolo Coulibaly managing partner at KDL financial LLC