Rapid advances in technology have been a boon for independent retailers, helping them increase profits and maximize cost savings. Yet, the role of new technology goes beyond the sales floor. Many merchants are turning to high-tech-powered means to obtain loans significantly faster, easier, and at favorable lending rates compared to traditional banks.
Through non-traditional financing sources, including Peer-to-Peer Lending, Fintech Lenders, and Invoice and Asset-Based Financing, retailers can obtain timely funding during rough times.
Alternative lenders provide a number of advantages to institutional financiers. They tend to be considerably more flexible lenders than conventional financial institutions, whose strict terms and rising interest rates have become an increasingly unappealing option.
In addition, the application process and turnaround for unconventional lenders is considerably less involved and time-consuming in opposition to time-honored establishments that require extensive data and documentation.
The new crop of investors also outpaces banks, literally and figuratively, in delivering funds. Retailers facing unexpected cash shortfalls need emergency money immediately, and alternative lenders can provide funds within 24 to 48 hours, compared to a weeks-long process otherwise.
Common alternative lending scenarios include peer-to-peer (P2P), fintech, merchant cash advances, invoice financing and asset-based lenders.
Peer-to-peer lending encompasses platforms such as LendingClub and Prosper Marketplace that connect businesses with investors. These lenders use data that regular banks would not consider, such as holiday and seasonal sales, as well as other benchmarks.
For instance, a toy retailer who needs extra funds to maintain a robust inventory of the latest holiday hot sellers will find more favor with a peer who looks at holiday profits year-over-year, rather than a regular bank that considers only an entire calendar year’s worth of sales.
Fintech lenders, as the name implies, use technology to determine whether to fund independent retailers and how to structure loans. They employ computer algorithms that enable same-day decisions and funding.
Fintech lenders, like most alternative creditors, take many of the same factors into the loan review process as conventional banks, including credit scores and reports, current debt, and earning stability.
However, using artificial intelligence, they also review cash flow, purchasing trends, revenue patterns, invoices and other fluid dynamics of day-to-day business. By evaluating real-life financial patterns and scenarios, AI, ironically, takes a more humanized accounting of a business than a brick-and-mortar bank.
Asset-based lending and invoice-based lending are alternative financing methods that especially benefit grocery stores, fashion retailers and other companies that require ongoing working capital. These lenders evaluate assets to determine credit lines and adjust borrowing capacity based on asset changes. Invoice lending takes pending invoices into account, allowing business owners to borrow against forthcoming payments.
As with traditional lending, there are potential downsides to non-conventional loans, including higher and fluctuating interest rates. Some alternative lenders require quick repayments, down to weekly and even daily deadlines. There is also less regulation in non-traditional lending. Business owners must perform due diligence to ensure that a specific borrowing arrangement is a good fit.
On the whole, non-traditional lending sources provide independent retailers with prompt funding based upon flexible and real-time factors, and a broader understanding of the business relative to traditional banks. Independent retailers should familiarize themselves with alternative lenders and the lifelines they provide that can right a teetering ship and keep business flowing smoothly.
