Financial Options Other Than A Bank
Today one is looking for an alternative way of funding and people do not want to raise a loan through the traditional methods. Thus there are alternative sources of funding that are creating demand and people are looking at them as compared to depending on a bank for their financial needs.
Alternative funding sources became popular after the 2008 crisis when a number of banks failed. The consumers started to accept the alternative ways to fund their requirements. These are basically peer-to-peer lending and this is seen to be the future of banking.
This is useful for companies that are a start-up or just in the niche stage. The companies offer equities in return for money. The company thus does not have to enter the primary financial market. The crowdfunding platform is a middleman between the investor and the company.
So instead of taking bank loans or approaching a venture capitalist, many companies are now directly approaching the equity methods to raise loans.
The primary source that companies resort to is banks in order to raise working capital. But banks want collateral which becomes difficult for the small companies. Also, the banks charge a high rate of interest to small companies because these companies are considered to be risky.
There are however many online peers to peer sites that connect the borrower and the lender and thus eliminates the cost of an intermediary. The borrowers get access to money at a lower rate of interest and without keeping any collateral. The investors on the other hand who have an excess of cash that is lying idle, agree to invest in a business and reap the benefits.
Loan sharking is big business and most startups and small companies are looking for alternative ways to raise a loan amount instead of approaching the traditional banks.