Over the past decade or so, traditional business lending has faced competition from new and creative alternative finance options. High street banks are clamping down on offering credit, and there are few small businesses which meet the criteria for a traditional bank loan. Yet this hasn’t discouraged entrepreneurs and business owners who require capital to grow their companies.
If you need a business loan, there is now a variety of options to choose from, many of which offer more attractive terms than a traditional lender. Here are the four biggest reasons why the old fashioned loan is out of date.
The application process is far too long
Banks are notorious for having strict regulations and procedures, so it feels like it takes years to get anything done. You’ll have to give your life story in your application, along with a few years proof of income, trading history and financial planning. Not only does the application process take ages, you’ll also then be left waiting to see whether it’s been approved, then you’ll face another wait before you receive the money. In the digital age, applying for a business loan shouldn’t be this hard.
They can’t compete in the growing marketplace
There was once a time when the only place you could secure a loan was a bank, unless you knew a kind nobleman willing to lend his personal savings. However, now there is much more competition in the lending market, from crowdfunding platforms, mortgage brokers and peer to peer lending streams. You’d think that financial institutions would adapt their traditional loans in line with this competition, but they haven’t – and therefore cannot compete.
Traditional loans usually require security
Loans offered by banks are typically secured loans, which means the borrower has to offer their assets as security. This could be their property, their car etc. Why would somebody choose to sign such an agreement when they can get the same cash as an unsecured loan elsewhere?
Most people aren’t eligible
The fact is, traditional lenders are tightening their belts and their strict criteria means most applications are rejected. Most banks won’t lend to start-ups because there is too much risk involved, and you may have to own your home or meet other conditions before they even consider lending to you. The old fashioned lending system simply doesn’t work for the modern business world.
Find out about your other lending options on our website.