The Rise of the Alternate Lender
For a long time banks were one of the only places that you could apply for, or get a loan; this is no longer the case. While banks are still the big players in the loan market, there are now numerous other options for finance. In Ireland, alternate lenders and products are changing how SMEs can get finance. The 3 main players, AIB, Bank of Ireland and Ulster bank have historically dominated the space; but now more and more alternate lending companies are appearing. Bank loans or overdrafts are no longer the only option for SMEs. Thanks to alternative lenders, there are now many more funding options available.
Why Do Alternative Lenders Exist in Ireland?
Alternative lending platforms have grown in recent years throughout Europe and the US with more and more small businesses looking to access credit. This growth has been particularly prominent in Ireland since the economic recovery began. The alternative finance economy for mid-market players across Europe hit $9.1 billion in closed deals across the first quarter of 2017. The global peer-to-peer lending market is projected to reach a value of $460 billion by 2022. North America is naturally the largest P2P market in the world but it is closely followed by Europe. While Ireland might be relatively new to the industry of alternate lending, this industry is rapidly growing here as well.
What is Fueling the Rise of Alternative Lending?
While the banks still dominate the lending market; alternative lenders have many benefits, and many of which the banks cannot compete with. A material difference between alternative lenders and banks are their approval rates on loans. Where alternate lenders report approval rates of between 61-64%, this contrasts sharply with the big banks who tend to have an approval rate of between 13-20%. Other benefits of alternative lenders include:
- More Flexibility
- Faster Funding
- Less Paperwork Required
- Greater Risk Appetite
- Diverse Products
What Alternate Lending Products Are Available?
For small businesses there are a range of options for finance; and they vary widely depending on your business needs. These fall into 3 main types:
- Leasing, Asset Finance & Hire Purchase: These are different ways of renting equipment. Using this method means an SME doesn’t have to pay a large sum of money at once. Instead, they can make regular installments towards the equipment. In most cases you are given the option of buying this equipment at the end of the hire period.
- Invoice / Trade Finance: Various types. The most popular product is invoice financing. This works by an SME being given a percentage of the invoices immediately, and then repaying the loan once the invoice is fully paid.
- Peer-to-Peer Lending: This method works by matching borrowers and lenders, generally through online platforms. Peer-to-peer lending can take many different forms. An example of peer-to-peer lending is a term loan or a cash advance.
The main peer-to-peer (P2P) lenders in Ireland are GRID, and Linked Finance. Linked Finance launched in Ireland in 2013 with GRID launching the following year. Other alternate lending options are invoice financing or leasing. GRID Finance supplies their invoice financing and leasing facility through Grenke. Grenke operates in 29 countries and has been present in Ireland for more than 10 years. They identify leasing as their core business but also provide an invoice financing facility. To find out about other alternative lenders and the products they supply visit the Independent Finance Providers of Ireland’s website here.
Irish businesses have gone from relying on three main banking institutions for their financial needs to having a multitude of options. Alternate lending institutions can be a much more attractive option for small businesses as they have a different lending criteria and offer options and flexibility that the banks are unable to. In recent years, the awareness surrounding alternative lenders has grown exponentially. There is now more knowledge surrounding other financial options for SMEs than ever before.
For more information about GRID’s alternative finance options click below.