A worldwide movement away from traditional bank loans to alternative forms of financing is currently taking place. In fact, big banks may finally be losing their grip on credit markets.
It’s interesting that this trend is occurring as much in developed countries like the United Kingdom, the United States and Australia as it is in less wealthy countries, where fewer people have bank accounts and easy access to traditional banking facilities.
What’s driving the move away from bank loans
Limits on access to bank loans
The credit crunch of 2007/2008 resulted in banks everywhere being forced to tighten up their approaches to credit. One effect is that it’s harder for both individuals and businesses to secure loans. Where loans are granted, they may be too slow to come through or the loan limits may be too low to meet borrowers’ needs.
The credit crunch also did little to inspire confidence in the big banks. These days, phrases like “safe as the Bank of England” tend to be used sarcastically. Customers are more wary than in the past about banks’ non-competitive practices and high charges, including the costs of overdrafts.
Technology
Smartphones and cloud-based internet technology are transforming the world of banking, resulting in a move away from physical bank branches to digital platforms. These same technologies have opened doors for a wide range of non-bank financial service providers, from insurers to lenders.
They’ve also made new approaches to funding, including funding via the internet, possible for the first time. People today can access a number of financing options directly from their smartphones, whether they’re in rural villages with little or no access to traditional banking facilities or in bustling city centres.
What are popular alternatives to bank loans?
Several non-bank funding alternatives are gaining popularity with both individuals and businesses because they’re more flexible, and make it faster and easier to secure cash.
One potential solution for individuals and small to medium businesses looking to bridge short-term cash flow gaps is secured asset lending, like the lending offered by Lamna. With this type of short-term loan, you can gain fast, almost immediate access to funds in just a few simple steps.
Other popular alternatives to bank loans for entrepreneurs and businesses that are short of funding include:
- asset financing, which involves using balance sheet assets, like accounts receivable, inventory or short-term investments, to obtain loans
- invoice discounting, or borrowing against the value of invoices for which payments haven’t yet been received, to bridge cash flow gaps
- hire purchase and leasing (paying for items, from inventory to equipment, in installments over a period instead of in full at the outset) and trade credit (suppliers let you buy now and pay later)
- peer-to-peer lending (P2PL), with loans made via online lending platforms instead of traditional financial institutions
- crowdfunding, which involves raising funds from a large number of individuals, via the internet.
For more information about how to secure a short-term loan from Lamna, call 086 111 2866 – or use our online form to apply for a loan now.
ILLUSTRATIVE EXAMPLE
Client borrows R10,000 for 90 days.
Loan Amount | Repayment Period | Monthly Interest | Total Cost of Loan | Initiation Fee | Monthly Fee | APR |
|---|---|---|---|---|---|---|
R10 000 | 3 months | R500.00 | R2 914.50 | R1 207.50 | R569.00 | 60% |
Fixed rates range from 36% to 60% APR and payment options range from minimum 3 to maximum 24 months. Apart from the initiation and monthly fees shown below, the only additional fee is credit life insurance if the borrower does not have this already.