The Rise of Alternative Lending: A Game Changer for Financing

Exploring the emergence of alternative lenders, their benefits with real-world success stories

James Robson
November 3, 2023

Have you ever faced challenges securing a business loan from traditional banks? If so, you’re not alone. The rise of alternative lending is revolutionising the way businesses access financing, offering a more flexible and efficient solution compared to traditional banks. In this blog post, we’ll explore the emergence of alternative lenders, their benefits, real-world success stories, and the future of alternative lending.

Key Takeaways

  • Alternative lending has been spurred by technological advancements and regulatory changes, providing an alternative to traditional banking practices in small business financing.
  • Businesses benefit from flexible loan options with a simplified application process, enabling them to secure funding for expansion and growth despite traditional bank financing not being available.
  • The future of alternative lending is expected to be characterised by increased market growth, competition and technological advancement.

The Emergence of Alternative Lenders

Bank loans and financing for small businesses declined after the 2008 recession. This downturn opened the door for alternative lenders, who have since emerged as a formidable force, challenging traditional banking practices in various lending spheres, including bank loan options for small businesses.

The growth of alternative lending is driven by two main factors: technological advancements and regulatory changes.

Technological advancements

Technology in the alternative lending sector has advanced rapidly in recent years. New credit scoring models have been developed that take into account alternative credit data not typically found on consumer credit reports, enabling businesses to access funding for growth.

Additionally, significant progress has been made in enhancing security, proactively identifying customer needs, and providing faster and easier access to financial products in the alternative lending space, allowing businesses to execute their business plans more effectively.

Regulatory changes

Regulatory changes have also played a significant role in the rise of alternative lending. After the 2008 financial crisis, traditional lenders had to comply with stricter capital requirements and risk management standards, making it more difficult for them to provide loans to borrowers. In contrast, alternative lenders emerged as a viable alternative for borrowers who were unable to meet the stringent requirements of traditional lenders.

These many alternative lenders, also known as non bank lenders or alternative lender companies, were able to fill the gap created by traditional lenders by offering more flexible lending terms and utilising innovative technologies.

The Benefits of Alternative Financing

Alternative financing offers businesses flexibility in financing options and a streamlined application process, making it an attractive choice for many borrowers. We will explore these benefits in greater detail, illustrating how alternative lending offers a more efficient and accessible financial solution than traditional banks.

Flexibility in financing options

One of the key advantages of alternative financing is the variety of financing options it offers, tailored to specific business needs. Some common types of loans provided by alternative lenders include term loans, lines of credit, invoice factoring, and equipment financing.

Invoice factoring, for example, is a financing option where a business receives an advance on their unpaid invoices and repays it with fees upon receipt of payment. This flexibility in financing options allows businesses to choose the most suitable solution for their unique financial needs.

Streamlined application process

One of the most appealing aspects of alternative lending is its streamlined application process. Unlike traditional banks, which often require extensive paperwork and lengthy approval processes, alternative lenders offer a simplified online application process that can be completed in a matter of minutes.

Moreover, the typical steps involved in an alternative lending application process include:

  1. Loan application
  2. Risk evaluation
  3. Credit decisioning
  4. Origination
  5. Underwriting
  6. Servicing
  7. Collection
  8. Reporting

This process results in faster decisions, quicker access to funds than traditional banks, and eliminates the need for physical bank statements.

Real-World Success Stories

The rise of alternative lending has led to numerous success stories, showcasing how small businesses have expanded, and startups have secured financing for growth through alternative lenders.

In this article, we will examine real-life examples, demonstrating how alternative lending fuels business growth and the importance of a well-crafted business plan.

Small business expansion

Small business expansion has been made possible through alternative lending, providing fast and flexible funding options for various business needs. For instance, alternative lenders have provided a lifeline to small businesses in a post-pandemic world.

By utilising alternative lending options, such as online lenders and crowdfunding platforms, small businesses have been able to secure the necessary funding to expand and grow, even when traditional bank financing is not available.

Startup financing

Startups have also benefited from alternative lending, with lower eligibility requirements and quicker funding enabling new businesses to launch and grow. For example, Avellinia Capital raised $150 million through an alternative lending fund, while Monzo, Revolut, goHenry, Adzuna, eMoov, and POD Point secured financing through venture capital and crowdfunding platforms like Crowdcube.

These success stories demonstrate how alternative lending is paving the way for startups to secure the financing they need for growth.

Overcoming the Challenges of Alternative Lending

While alternative lending presents numerous benefits, it also comes with its own set of challenges. We will analyse how businesses can navigate these challenges by evaluating loan options and managing repayment schedules, thus guaranteeing a positive borrowing experience.

Assessing loan options

When evaluating loan options from alternative lenders, it’s crucial to compare interest rates, terms, and fees to find the best fit for a business’s financial needs. To effectively compare rates, terms, and fees among various alternative lenders, one should gather information about different lenders and their loan offerings, compare interest rates, analyse loan terms, consider fees and additional costs, read customer reviews, and seek professional advice if needed.

Managing repayment schedules

Managing repayment schedules is essential for ensuring a successful borrowing experience with alternative lenders. To effectively manage repayment schedules, borrowers should:

  • Establish clear repayment terms
  • Automate payments
  • Offer flexible repayment options
  • Communicate regularly with their lenders
  • Monitor and track repayment progress

By carefully managing repayment schedules and planning for timely payments, borrowers can avoid penalties or negative impacts on their credit scores.

The Future of Alternative Lending

The future of alternative lending looks promising, with continued market growth and competition, as well as further technological advancements in lending processes, expected to drive the industry forward.

We will examine the projected growth of the alternative lending market and discuss how technology will sculpt its future.

Market growth and competition

The alternative lending industry has experienced significant growth over the past decade, with the global market projected to reach billions of dollars by 2028 and a CAGR ranging from 15% to 22%. As the market continues to grow, competition among alternative lenders will drive innovation and better borrowing options for businesses.

This increasing competition will also encourage alternative lenders to offer lower interest rates and more flexible terms, making alternative lending an even more attractive option for borrowers.

Technological advancements in lending

Technology will continue to play a pivotal role in the growth of the alternative lending market. Recent technological advancements, such as artificial intelligence, blockchain, and cloud computing, have already improved the efficiency of the lending process and enhanced the borrowing experience for businesses.

As technology continues to advance, we can expect even greater improvements in the lending practice, making alternative lending an increasingly popular choice for businesses seeking financing over traditional lending.


In conclusion, the rise of alternative lending is a game-changer for financing, offering businesses a more flexible and efficient solution compared to traditional banks. With continued market growth, increased competition, and ongoing technological advancements, alternative lending is set to become an even more popular choice for businesses seeking financing. As a business owner, it’s essential to stay informed about the latest developments in alternative lending and consider this innovative financing option to support your business’s growth and success.

Frequently Asked Questions

What is the meaning of alternative lending?

Alternative lending is an alternative to the traditional banking system, providing a more efficient process for lenders and borrowers by using technology-enabled models to rapidly underwrite borrower credit risk.

What are examples of alternative finance?

Alternative finance includes activities such as invoice financing, crowdfunding, peer-to-peer lending, lines of credit, term loans, merchant cash advances and revenue based financing, as well as online marketplaces offering reward-based crowdfunding, equity crowdfunding, revenue-based financing, online lenders, peer-to-peer consumer and business lending, and invoice trading third party payment platforms.

What is the alternative financing method?

Alternative financing is an option provided by lenders other than traditional banks, such as investment funds, venture capital investors, credit unions, hedge funds and private equity firms.

What factors contributed to the growth of alternative lending?

The 2008 recession, advances in technology, and changes in regulation have led to a decrease in bank financing for small businesses and to the subsequent growth of alternative lending.

Former lawyer, now building the future of SME finance.