Non-Bank Lending Solutions
In a recent article, Forbes explored how smaller organizations that are seeking capital have a variety of new options to turn to besides traditional bank lending. For many of these organizations, traditional bank lending may not be available, or simply cannot provide funds rapidly enough to meet urgent needs.
Unfortunately, Forbes explained that most organizations valued under $10 million are too small to gain the attention of the average investment banker. And if the organization has a bright enough potential future, the offers for financing they do receive come with terms that would frighten even a reckless financial advisor. This has left a capital vacuum for businesses that innovative lenders are developing new strategies to fill.
Forbes explored the return of leveraged buyouts as a viable strategy for converting company equity into readily available capital. This method allows the owner to take advantage of current low interest rates to sell stocks to interested executives, which can lead to both more motivated employees and more liquid equity for the owner. And by using techniques such as restricted stock and non-voting shares, owners are able to maintain control of their organization.
Online lending has many platforms that provide rapid, low-hassle capital to businesses in need. The list of SEC-registered peer-to-peer lenders that operate in the digital realm has grown steadily since the economy began to poke its head out of the recession. This trend has been driven by alternative lenders’ ability to offer lower rates and better terms than the traditional banks, as well as investors’ desire to minimize risk while still seeing solid short-term returns.
Those investors that weathered the recession with capital intact have been growing eager to put their funds to work. The Lending Club, an online lending platform, has gained significant attention for its focus on financing Silicon Valley startups, and has grown into a nearly $4 billion enterprise that brokered $2.1 billion in loans in 2013.
“There is a huge difference today between the people who can get a loan and people who want a loan, and that’s the market they’ve gone after,” Derek Chu, senior associate at Menlo Ventures, a venture capital firm, told the San Jose Mercury News about The Lending Club.
It seems that there is no shortage of potential investors available online, as evidence by the resurgence of crowdsourcing as a viable means for organization to gain access to capital. Although commonly dismissed as simply a novel concept, younger generations especially have found success with the strategy, largely for funding projects in the development stage. However, for crowdsourcing to be successful, there must be an existing “buzz” surrounding the project, to increase exposure to interested lenders.
When employing any of these strategies, it is important to consider risk management solutions that ensure the lender isn’t exposed to unnecessary risk. Because many of these methods rely on quick access to capital, having risk management software that is capable of delivering a rapid, accurate analysis is growing increasingly important.
