Various alternative and dynamic borrowing options have emerged in the last few years.
Alternative lending options are gaining pace in a technologically advanced world, and India is not far behind. Various alternative and dynamic options have emerged in the last few years. We explore a few popular ones in this article.
Peer-To-Peer (P2P) Lending
Peer-to-peer lending or P2P lending is a way of financing debts without using an official institution, such as a bank. Although it eliminates the need for a middleman by connecting lenders and borrowers directly, P2P lending takes a lot more time and involves more risk. However, it is often resorted to as a mode of alternative lending and known as crowdlending or social lending. It attempts to tap a larger market and earn the trust of many borrowers and lenders.
A line of credit also called LOC, is an agreement between a bank and a customer that enables the lender to give a credit line to the borrower depending on the maximum approved limit. It can be used by individuals, small or big businesses, governments, or other organisations. In this alternative lending option, the latter can use funds from the LOC at any time, if the agreed amount is not exceeded, and the borrower fulfills all other requirements set by the financial institution, which includes making the required payments on time.
Another alternative lending option that has gained popularity in India is crowdfunding. It is the practice of raising funds for a venture or a project by contributions from many people, and mostly on an online platform.
Online personal lenders offer you products that are like bank loans, but they have less stringent requirements for credit score, annual revenue or the time invested in the business. They take less time for funding and are also easier to apply for. The only drawback of this loan is that it will cost you a higher rate of interest as compared to a traditional bank loan.
B2B or Business to Business Lending is quite similar to P2P lending, the only difference being that the latter is used for businesses only. Startups seek funding when they start a new venture or need to strengthen their current business. In the earlier days, going to a bank for a loan was the only way out. With B2B lending, where one business helps another, there is flexibility in choosing the amount to be borrowed, term, maturity date and the requirements of pre-payment.
Micro loans are small loans that are given at a lower rate of interest and have emerged as one of the most viable alternative lending options for small businesses. These are often given to startups or new business ventures that require working capital to begin operations. They also cater to the needs of under-represented groups, such as women who own businesses and look after the needs of people who may have been involved in losses or bad credit. Alternative lenders have emerged in the last few years and have started providing microloans to small business owners, which is different from bank policies, as the former never lends small amounts of money.
Equipment financing is the money you borrow to get the equipment you need to run your business, and it includes anything from a computer to an industry-specific machinery, like a tractor or heavy machine. This kind of a loan is ideal for a company that can afford to make a down payment on a purchase, or who need their machinery to be updated or changed regularly.
Thus, these customer-friendly and revolutionary emerging alternative lending options in India have come to provide relief to individuals and small businesses who need to borrow small amounts of money to repeatedly meet their requirements. These new avenues of credit challenge conventional lenders such as banks and NBFC, and India looks forward to more growth and development in this arena.The writer is CEO & Co-founder of MoneyTap