The future of lending

Posted by By at 1 April, at 16 : 55 PM Print

TGR15_PropertyMindsetThe lending environment is catching up with the rest of the world, writes Nick Raphaely.

“It’s not personal; it’s business” is an old saying that just might be about to get the boot. It reflects a time when being in business meant that it was your interests against everyone else’s. However, this may soon no longer be the case. Technology is bringing us closer, and that means we’re looking for financial solutions that match the more personal way we’re doing business across the board. Lending is starting to catch up with the rest of us, cutting out the bank as middleman and matching funds with funds, friends with friends and financial potential with easily accessible finance.

Accessing capital for your business is no longer a game in which credit cards, business loans and second mortgages are the only rules one can play by. Since the GFC, credit card lending has swiftly declined. No one wants to reopen that can of worms. Small business owners have learned from their mistakes and are instead searching for smarter ways to access finance. New forms of lending such as peer-to-peer, personal asset loans and other specialty lenders are growing quickly as the new normal way to access capital.

Peer-to-peer lending is an innovative lending model that spreads the risk among a borrower’s peers. A range of ‘savers’ that are looking for a return on excess funds are matched with borrowers looking for a loan. If this sounds like what a bank does, that’s because it is. Only with peer-to-peer, it’s your peers, and not an invisible credit committee, who decide how much the loan should cost. Riskier loans are not declined, just priced accordingly. Making borrowing money social, means that individual businesses and individual needs are considered more important than matching the rigid red-tape criteria of a bank loan.

Another 21st century lending innovation is the personal asset loan. It empowers borrowers to use assets they already own as collateral for a loan. A personal asset loan allows business owners to bank their past – instead of mortgaging their future – to access capital. This is attractive because it allows the value of the asset speak for the value of the loan instead of variables such as credit scores and income checks. Particularly attractive is the ‘document light’ nature (no income or credit checks needed) and the inability to enter spiralling debt – the value of the asset caps the borrower’s commitment to the lender…

Excerpted from an article originally published in the April/May 2014 issue of Think & Grow Rich Inc. magazine. If you are a subscriber to Think & Grow Rich Inc. magazine, you will receive this article in your April/May 2014 issue of TGR. If you are not a subscriber, click here to subscribe. 

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