Fintech Disruption Index Moves Higher

The latest edition of the Disruption Index has just been released, and it is 41.57, up from 38.29 last quarter. This is good news for Fintechs in that the SME community is adopting digital faster than ever.

The Financial Services Disruption Index, which has been jointly developed by Moula, the lender to the small business sector; and research and consulting firm Digital Finance Analytics (DFA).

Combing data from both organisations, we are able to track the waves of disruption, initially in the small business lending sector, and more widely across financial services later.

The index tracks a number of dimensions. From the DFA Small business surveys (52,000 each year), we measure SME service expectations for unsecured lending, their awareness of non-traditional funding options, their use of smart devices, their willingness to share electronic data in return for credit, and overall business confidence of those who are borrowing relative to those who are not.

Moula data includes SME conversion data, the type of data SME’s share, the average loan amount approved, application credit enquiries, and speed of application processing.

Here are some of the highlights:

Business Confidence

SME Business Confidence of those borrowing is on the up, reflecting stronger demand for credit, with the indicator jumping a healthy 15.8%, however, the amount of “red tape” which firms have to navigate is a considerable barrier to growth.

Knowledge of Non-bank Financial Providers

Awareness of new funding options continues to rise if slowly, creating a significant marketing opportunity for the new players, and a potentially larger slice of the pie.

Business Data

Greater willingness to share data and use of cloud-based services continue to rise. One-third of businesses have data held within the cloud, including accounting, customer management, invoicing, human resource, and tax management. We see variations across the segments in their use of these services. Of the businesses applying for funding, almost 90% now provide some form of electronic data via online loan application and are clearly comfortable in doing so (suggesting security concerns are less of a deterrent than the incentive of the speed of application and execution).

Average Loan Size

Average loan size continues to move upwards to register above $40k for the first time, indicating that better businesses are embracing alternative finance arrangements. More than likely, these businesses have traditional banking relationships, but either choose (or are forced to) look elsewhere for liquidity.

Australia Rises In Global Alt-Lending Ranks

From Pymnts.com

Australia is now the Asia Pacific region’s second-largest alternative finance market, largely due to a favorable regulatory climate, according to new KPMG analysis.

The Australian market is quickly becoming a hotbed of alternative lending, and new analysis from KPMG suggests it has risen up in the ranks.

According to a new report from KPMG’s Cambridge Centre for Alternative Finance and the Australian Centre for Financial Studies, Australia could now be the Asia Pacific region’s second-largest alternative lending market, close behind China. News reports in the International Business Times on Friday (Sept. 22) said that a survey of 600 online alternative finance firms across the Asia Pacific found that Australia’s market grew 53 percent in the last year alone.

A key driver of that growth is favorable government policies, researchers said, with regulators around the world exploring how to ensure borrower protections without stifling innovation. About two-thirds of survey respondents said Australia’s regulatory climate is appropriate for the alternative lending industry.

While alternative finance remains a small portion of the overall lending market, the report also found that the Asia Pacific region is experiencing significant overall growth in this space.

China, though, is the clear winner, with its AltFin market accounting for 99.2 percent of the total Asia Pacific market, reports said.

The Australian government may be looking to facilitate growth of the alternative finance space, but research released in June suggested the industry has another hurdle to overcome: awareness.

Data from Moula and the research and consulting firm Digital Finance Analytics, outlined in their Disruption Index report, found there is room for the industry to gain traction by increasing visibility among small business borrowers.

“There is still a certain air of skepticism about non-traditional forms of lending,” said DFA Principal Martin North in an interview with Australian Broker at the time. “So, SMEs who need to borrow tend to still go to the normal suspects. They’ll look to the banks or put it on their credit cards.”

He added that this means the alternative finance industry has to work harder to boost awareness and promote education.

“I think the FinTech sector has a terrific opportunity to lend to the SME sector, but they haven’t yet cracked the right level of brand awareness,” North continued. “Perhaps they need to think about how they use online tools, particularly advertising, to re-energize the message that’s out there.”

Bitcoin faces another test as users battle over how its trading platform should be used

From Business Insider.

The price of Bitcoin remains on a rollercoaster as investors and developers continue to battle over its future.

The cryptocurrency crept above $US3,000 a little more than a week ago, before crashing to almost $US2,000. Since the start of this week it’s been on a steady climb back towards $US3,000. This chart shows the recent fluctuations:

But a report in the Wall Street Journal (WSJ) suggests that tensions still remain in Bitcoin community. While its price climbs, the eventual path that Bitcoin follows is still subject to a significant degree of uncertainty.

The rift centres around what Bitcoin is for and how it should be used. In one camp, users want Bitcoin to remain as a finite commodity similar to gold.

Opponents want the speed and size of Bitcoin transactions to be rapidly sped up. In effect, they want Bitcoin to function to a similar fashion to a highly liquid currency like the US dollar.

The cryptocurrency was established with a limited supply of 21 million Bitcoins, of which around 14 million have been mined. That shortage of supply could go some way to explaining the dramatic increase in prices this year.

The blockchain network that Bitcoin trades on provides a historical record of all Bitcoin transactions. All users can see the blockchain activity, but the system provides a high degree of protection for people’s individual identity.

The Wall Street Journal provided a brief summary of how the activity on the blockchain currently works. Bitcoin transactions are packaged into blocks by companies that specialise in processing the trades.

However, the size of those transactions is currently capped. That means a processing speed of approximately just seven transactions per second, compared to a large network like Visa which can process hundreds of thousands in the same time frame.

With Bitcoin’s popularity exploding, the reduced capacity has led to delays and higher transaction fees.

Not surprisingly, some market participants want to increase the volume of transactions. But they’re facing resistance from those who want to maintain the status quo.

That resistance stems partly from a desire to protect their investment, but they also want to maintain the original Bitcoin platform without the intrusion of big business.

Previous attempts at compromise have failed, and the possibility of a split in the currency is back on the table.

The dispute has led a growing number of users to sell out of Bitcoin and purchase Ethereum instead. Prices for Ethereum (the world’s second biggest cryptocurrency) have also skyrocketed this year.

Ethereum, which experienced a flash crash overnight, was worth $US190 at the end of May and now trades at around $US300, after starting the year at a price of $US8.15.

According to the WSJ, all parties are open to boosting transaction capacity for Bitcoin but there are strong disagreements about how to actually go about it.

Businesses would prefer to raise the transaction limit for all Bitcoins, whereas their opponents (led by developers) want to set up a secondary network with faster processing speeds.

The net effect is that the outlook for Bitcoin remains increasingly cloudy as the market continues to develop and mature.

Awareness Proving The Toughest Hurdle For Aussie Alt-Lenders

 From Pymnts.com

Australia’s market for small- and medium-sized enterprises (SME) is by no means easy. The nation is grappling with a late supplier payments problem and with regulators looking to accelerate corporate payments to SMEs, though with limited expectation for the efforts to work.

But that presents an opportunity for alt lending, analysts say, as do tighter restrictions on traditional banks that may guide SMEs toward alt-fin, as they look to ease their cash crunches.

It seems an ideal climate for the alternative lending industry, but news of an analysis from Moula and Digital Finance Analytics this week finds awareness of these options is lacking among small business owners.

In their Disruption Index report, released quarterly, Moula and Digital Finance Analytics (DFA) scored Q1 2017 at 38.39, a 6.1 percent increase from Q1 2016. But the report said this represents only “gradual change” among small businesses in terms of their awareness of alternative lending options.

“There is still a certain air of skepticism about non-traditional forms of lending,” said DFA Principal Martin North in an interview with Australian Broker. “So SMEs who need to borrow tend to still go to the normal suspects. They’ll look to the banks or put it on their credit cards.”

He added that this means the alternative finance industry has to work harder to boost awareness and promote education.

“I think the FinTech sector has a terrific opportunity to lend to the SME sector, but they haven’t yet cracked the right level of brand awareness,” North continued. “Perhaps they need to think about how they use online tools, particularly advertising to re-energize the message that’s out there.”

There certainly is a market for alternative lenders to fill in the funding gap for small businesses.

Earlier this year, Australia’s Small Business and Family Enterprise Ombudsman Kate Carnell began naming some of the worse offenders of late supplier payments, including Kellogg’s and Mars, likening their delayed invoice payment practices to “extortion.” With the Council of Small Business Australia, regulators began to take a harsher stance on late payments, and in May, the voluntary Supplier Payment Code, which sees companies vowing to pay suppliers on time, came into effect.

As regulators consider whether to create fair supplier payment practice legislation, small businesses in the country continue to struggle: Research from American Express Australia and Xero released in April found nearly a third of the invoices in the cloud accounting platform can’t be reconciled every month because they’re waiting to be paid.

Meanwhile, Australian Broker reported, regulators are imposing stricter rules on traditional banks that may see them back even further away from small business borrowers. Plus, Moula and DFA’s report found, small business demands on their financial service providers are on the rise. According to their report, SMEs say a loan application should take, on average, less than five days to see final approval. Alternative lenders take an average of 36 hours, the report found.

The data suggests alt lending can meet some of the demands among SMEs for working capital and faster lending services.

“FinTechs like Moula are at the quick end, but a lot of the traditional lenders such as the major banks take a lot longer,” North continued. “What this is saying is that if the expectations of SMEs point to quick approval times and if the major players aren’t able to do that because of their internal systems and processes, then there is an interesting opportunity for the FinTechs who can do it quicker. They can actually disrupt [the industry].”

According to North in a statement found within the report itself, awareness levels among SMEs are gradually rising.

“In the last three months, we have seen a significant shift in attitudes among SMEs as they become more familiar with alternative credit options and migrate to digital channels,” he said. “The attraction of online application, swift assessment and credit availability for suitable businesses highlights the disruption which is underway. There is demand for new services and supply from new and emerging players to the SME sector.”

Indeed, while awareness is on the rise, it’s still relatively low. In Q4 of 2016, Moula found that just 14.1 percent of SMEs surveyed said they are familiar with their alternative finance options.

“So, what’s the barrier to growth?” North reflected to Australian Broker. “It’s not technology or demand from the SME sector. The barrier to growth is awareness and the willingness of SMEs to commit to this particular new business model.”

Awareness key barrier to SME lending growth

From Australian Broker.

While tighter banking restrictions have forced more small and medium enterprise (SME) borrowers towards non-bank lenders, a lack of awareness is still hindering real growth within the sector.


The Disruption Index, which has been jointly developed by small business lender Moula and research and consulting firm Digital Finance Analytics (DFA), puts the score for Q1 2017 at 38.39, which is 6.1% higher than the score of 36.18 recorded in the same time period a year ago.

Despite this, only gradual change has been made to grow awareness amongst SMEs about these alternatives. Looking at evidence on small business knowledge about non-bank lending – such as payments received to non-bank lenders, credit enquiries at credit bureaus, etc – 11% of all data sets reviewed showed use of these lending options. This is the first time the level has risen above 10% since the index was started.

“There is still a certain air of scepticism about non-traditional forms of lending, Martin North, principal of DFA, told Australian Broker. “So SMEs who need to borrow tend to still go to the normal suspects. They’ll look to the banks or put it on their credit cards.”

Because of this, the fintech sector still has a significant job to do in raising awareness about different viable alternative funding options that exist especially since this is a fairly new sector, he said.

“It’s a new type of lender so it takes time to build brand awareness. The other thing is that the approach of applying online and fulfilling online for the SME sector is also quite new and different.”

“I think the fintech sector has a terrific opportunity to lend to the SME sector but they haven’t yet cracked the right level of brand awareness. Perhaps they need to think about how they use online tools particularly advertising to re-energise the message that’s out there.”

The data also showed SMEs are becoming more demanding of the financial services providers, with the expectation that loan applications should take an average of 4.8 days to the final approval.

It seems fintechs are coping with this added demand however, with the Index recording an average loan time of 36 hours. This is slightly longer than the previous quarter’s findings due to added public holidays and school holidays in April.

“Fintechs like Moula are at the quick end but a lot of the traditional lenders such as the major banks take a lot longer,” North said. “What this is saying is that if the expectations of SMEs point to quick approval times and if the major players aren’t able to do that because of their internal systems and processes, then there is an interesting opportunity for the fintechs who can do it quicker. They can actually disrupt.”

Maintaining the status quo was not an option for the major financial institutions because of this added expectation, he added.

“SMEs are looking for quicker, faster responses and there are players out there who can actually deliver.”

“So what’s the barrier to growth? It’s not technology or demand from the SME sector. The barrier to growth is awareness and the willingness of SMEs to commit to this particular new business model.”

The Disruption Index itself examines a number of elements, some of which come from DFA’s survey data of SMEs and others which come from Moula’s analysis of their own experience lending to the small business sector.

“We score each of those elements and essentially we run an algorithm. Each of them has a score between the various elements that’s not weighted individually. We then add them up and that give us a total score. What this is trying to do is put a finger on the pulse of what SMEs are up to and to what extent SMEs are actually aware of fintechs as an alternative funding source,” North said.

Fintech Disruption of SME Continues

The latest edition of the Disruption Index which tracks change in the small business lending sector, and more generally, across financial services has been released. The latest score is 38.39%

The Financial Services Disruption Index has been jointly developed by Moula, the lender to the small business sector; and research and consulting firm Digital Finance Analytics (DFA).

Knowledge of Non-bank Financial Providers

Further to the Business Data observation, we are seeing actual evidence of SME awareness of alternate financial offerings through data (eg. evidence of payments received from and made to alternative lenders; credit enquiries at the credit bureaus). At 11% of all data sets reviewed this quarter (above 10% for the first time), this appears to be forming a continuing, upwards trend.

Service Expectation

SMEs are becoming more demanding of their financial service providers, as we continue to see a collapse in their expectation of how long it should take for a loan application through to a decision. The latest data shows this number is below 5 days for the first time… at 4.8 days.

Business data in the cloud

SME’s continue to show a willingness to provide electronic data access in return for access to credit, with this quarter’s % of SME’s increasing to 16.2% from last quarter. It feels we are almost now at a tipping point, where businesses are moving into the ‘comfortable’ range in permissioning data, especially if there is economic and ease-of-process upside from doing so.

Loan Processing Speed

Time taken to execute loans was impacted by April’s 3 x 4 day weeks (school and public holidays), which slowed down the pace at which SMEs completed their loan applications and pushed out average total loan time elapsed to 36 hours… still well inside the Service Expectation measure observed (ie. fintech is doing its bit to meet and drive service expectation).

Smart Devices

The proportion of SMEs with smart devices has risen – now well over half of all SMEs at 54%

Read more on the Disruption Index Site.

Foreign firms could “colonise” Australian banking

From Investor Daily.

Australia’s slowness to offer open data leaves the country’s banking sector open to an incursion from more competitive foreign companies, according to Tyro Payments.

Speaking to members of the French-Australian Chamber of Commerce on Wednesday, 3 May, Tyro Payments executive director Jost Stollmann said that globally, banking is on the cusp of transformation.

“Transformations happen in windows, if you miss the window it’s gone, and I see that now the window of digital transformation opens in those business places that are more complicated and tend to be more regulated,” he said.

“I personally think that banking is ripe for disruption.”

Mr Stollmann said there are three ways this disruption could play out; the major banks could reinvent and disrupt themselves, innovative start-ups could come through to challenge the incumbent players, or data aggregators such as Alibaba’s Ant Financial could become the dominant force in financial services.

The primary challenge facing Australia’s banking sector at present is that it is “hopelessly far behind” its international peers when it comes to the availability of open data and open APIs, Mr Stollmann said, noting that the country is “at risk of losing the opportunity” to innovate and become more competitive.

“The productivity commission has tabled its report to the government and it’s nice, and they’ve discovered that open data has benefits for the community and we need it, which is all heading in the right direction, but it falls completely short in terms of scope,” he said.

“It’s really a problem; you compare this with the UK, the UK went through the global financial crisis and they do not have a high regard for their banks, so the government and the regulator are very keen to open up banking for competition.”

Mr Stollmann added that the European Commission has mandated that European banks must deliver open data from January 2018.

“That’s less than a year away. You can imagine that the European banks have screamed that this was the end of the world but they’ve moved on,” he said.

“Now that it’s mandated, it has unleashed investment into the space, and in my view there’s going to be a revolution in banking.”

The shift to an open data economy in Australia is critical to the ongoing competitiveness of the country’s banks, Mr Stollmann said, cautioning that without an open data economy to provide a “level playing field” for start-ups, the sector will suffer.

“If we don’t get our act together and move fast, the major banks will have a problem because they don’t know how to compete, the fintechs will have a problem scaling up and the foreign colonisers will win,” he said.

“The foreign giants will colonise – it’s nothing new, we’ve seen it in media and advertising, maybe we’ll see it now in commerce.”

Fintech Disruption Continues Apace

The latest edition of the Financial Services Disruption index is released today. It measured 40.16, up 5.52% from last quarter.

The Disruption Index tracks change in the small business lending sector, and more generally, across financial services. The Financial Services Disruption Index, which has been jointly developed by Moula, the lender to the small business sector; and research and consulting firm Digital Finance Analytics (DFA).

Combing data from both organisations, we are able to track the waves of disruption, initially in the small business lending sector, and more widely across financial services later.

Highlights this time include:

  • Non-bank SME lenders are becoming more mainstream, with 14.1% of the surveyed population now familiar with the options available from this segment of lenders. Compare this 4.2% at the same time last year, we see a significant 230%+ increase. However, in number terms, we are talking about roughly 300,000 businesses now aware (up from less than 100,000), so there is sizeable upside for those willing to shake the market up and be relevant for the ‘engine room’ of the Australian economy.
  • The gulf between SME loan assessment expectations and banks’ loan assessment execution is growing, with continued downward pressure on expected turnaround times. The latest survey indicates 5.4 days expected assessment turnaround… requiring significant bank process replumbing to meet those types of targets.
  • Businesses data provisioning is now commonplace and the early fears around security of login credentials and ‘what will they do with my data’ appear to be receding.
  • Ease of process (loan applications completed in a few clicks) and speed of assessment appear to be the catalysts here. In the last quarter, 80%+ of all businesses starting a loan application moved on to provision some form of electronic data.
  • Moula continues to execute loans in, on average, 29 hours.  Loans to more complex business structures, such as trusts, impact on the average loan processing speed due to additional compliance-related processes.  Loans to more simple structures such as sole traders and companies are typically executed within 12 hours of the initial application.
  • Business confidence rose in borrowing SME’s especially in eastern states of NSW, VIC and ACT. Less strong in SA, TAS and QLD. There has been a strong fall in WA thanks to the end of the mining boom, and second order impacts across other industry sectors there.

 

SME Digital Disruption Continues Apace

The latest edition of the Digital Finance Disruption Index, a joint initiative by Digital Finance Analytics and Moula – a fast and friendly way to give small businesses access to capital – is released today. The Disruption Index tracks change in the small business lending sector, and more generally, across financial services.

di-chart-q3-2016-smallFinancial Services are undergoing disruptive change, thanks to customers moving to digital channels, the emergence of new business models, and changing competitive landscapes. Using combined data from the DFA SME Survey, and from Moula on loans processed, we track the momentum of this disruption in Australia.

This quarter the index slipped a little to 38.06, from 39.26 in the previous quarter, showing the first small decline in the index in the 6 quarters since the index began, but should be read in the context of a significant increase in the previous quarter.

The reasons are mixed, however, we still see the trend moving strongly upward over the long term as all the catalysts of disruption are building : use of electronic devices, use of electronic data and a continuing trend away from bank brand loyalty to those providers who deliver the best products and service.

Looking at some of the highlights:

  • Awareness of non-bank funding options continues to grow among SMEs, thanks partly to greater coverage in the media of “Fintech”. However, there is more to be done to link Fintech more directly with unsecured lending in the minds of SME’s.
  • Business confidence rose in borrowing SME’s especially in eastern states of NSW, VIC and ACT. Less strong in SA, TAS and QLD. However, this was offset by a strong fall in WA thanks to the end of the mining boom, and second order impacts across other industry sectors there.
  • The proportion of SMEs with smart devices has risen – now well over half of all SMEs at 54% are using their smart device as their primary business management tool. Most smart devices are multi-function phones, rather than tablets. Younger business owners have an ever higher penetration rate.
  • Coupled with the increasing adoption of smart devices in SMEs, we are also seeing increasing use of cloud accounting data, not only in running a SME but also to obtain a loan (through data permissioning). In the latest results, over half of all businesses permissioned Moula into cloud accounting data.
  • The availability of data, and the non-reliance of traditional business plans, has meant that Moula is capable of processing SME loans within a 24 hour period – evidenced by an average approval time of 20 hrs in the most recent quarter.

The Disruption Index is an important tool which will highlight the changing face of financial services in Australia. There is no doubt that new business models are emerging in the context of the digital transformation of the sector, and bank customers are way ahead of where many incumbents are playing. The SME sector in particular is underserviced, and it offers significant opportunity for differentiation and innovation.

In the last three months we have seen a significant shift in attitudes among SMEs as they become more familiar with alternative credit options and migrate to digital channels. The attraction of online application, swift assessment and credit availability for suitable businesses highlights the disruption which is underway. There is demand for new services, and supply from new and emerging players to the SME sector.

Read more on the Disruption Index Site.

 

Alternative Lending 101

Kabbage is one of the most interesting platform lenders offering loans to SME’s in the US, and now Canada, Mexico and via white label platforms other countries, including Australia. Their analytic platform takes business activity data such as online sales and accounting information to facilitate fast underwriting in just a few minutes. Loans of up to $100,000 are available to businesses with a turnover of $50,000 or more.

The Kabbage platform has originated more than US$1.6 bn in loans, via Kabbage, the SME platform, Karrot, their consumer lending business and via white labeling to third party lenders. Kabbage is funded and backed by leading investors including Reverence Capital Partners, SoftBank Capital, Thomvest Ventures, Mohr Davidow Ventures, BlueRun Ventures, the UPS Strategic Enterprise Fund, ING, Santander InnoVentures, Scotiabank,and TCW/Craton.

In 2015 Kabbage announced plans to move into the Australian market with a white-label offering of its small business lending technology. The launch in Australia represents Kabbage’s first foray into the Asia-Pacific region, having already been in operation in both the U.K. and the U.S.

The service in Australia is operated by Kikka Capital, which licensed the platform and manages marketing, funding, and loan servicing. Kabbage  handles underwriting and management of the loans.

Here is an interesting post where Kabbage discuss small business funding options. We have previously discussed the difficulty SME’s face in getting access to funding, and the role of fintechs have in changing the lending landscape. The latest Disruption Index measures the growth in momentum for SME lending in Australia.

Many small business owners might at some point find it difficult to get working capital or a small business loan from a traditional bank – and in that situation, it’s important to know about the various alternative loan options that are available.

According to a recent article in the Harvard Business School “Working Knowledge” blog, as of May 2014, only 13 percent of applicants for small business loans at big banks were getting approved. The SCORE organization has found that small business owners are less likely to get a bank loan if their business is young (less than 2 years in business), if they have less than perfect credit (credit score below 640) and if they are seeking a relatively small loan amount (less than $250,000). Big banks tend to prefer to issue larger loans than most small business owners need, because the banks’ costs of issuing loans are not much smaller for small loans than they are for big loans.

According to a survey published in an article in the Wall Street Journal, 19 percent of small business owners have postponed investments in their businesses because of lack of loan funding, and only 18 percent could get a bank loan – faced with a lack of funding from traditional sources, 17 percent of business owners borrowed money via credit cards, and 13 percent asked their friends and family for loans. Small business owners are starting to get more creative in looking for alternative loan options when they cannot get what they need from the traditional bank lenders.

One of the biggest new trends in helping business owners find alternative loan options is the rise of platform lending. With platform lending, borrowers can get the money they need without relying on the traditional bank system. A study from Harvard Business School found that in 2014, although the total loan volume of small business bank loans decreased by 3.1 percent, overall online lending to small businesses grew by 175 percent. This is a sure sign that platform lending is on the rise and is taking the place of traditional lenders.

With so many business owners seeking loans and finding it more difficult to get approved by traditional bank lenders, it’s no wonder that new options like platform lending are starting to fill the gap. Platform lending is an innovative new way to get loans, where people can sign up online, go through a faster, efficient approval process and get the funds they need more quickly than a typical bank loan.

If you’re looking for a small business loan and wondering how to navigate the alternative loan options such as platform lending, here are a few guidelines on how to evaluate each of your options:

Loan from Family and Friends

Borrowing from family and friends is often a first-resort loan for many small business owners. After all, the people who know and love you best are often eager to support you in your business endeavors. If you want to let your family and loved ones in on a great investment opportunity, selling equity in your business or asking for a small business loan could be one way to get the cash you need.

Advantages: Friends and family typically know you best, and they will believe in you and support your vision of success, even if a traditional bank lender cannot offer you a loan. It’s natural to want to turn to your inner circle first. And your family might be willing to give you more favorable payment terms – lower interest rate, longer time to pay off the loan, etc. – than a typical bank would.

Drawbacks: First of all, it can be hard to raise enough money just by asking your family and friends. Unless your family are a bunch of angel investors, they might not have enough money to spare to be able to fund a significant business investment. And even if you can get enough money from them, borrowing from friends and family can be risky – not only in a financial sense, but also emotionally risky. After all, what if your business idea doesn’t work out? What if you lose your family’s money? What if your business becomes a source of hurt feelings and damaged relationships with the people you love most? It’s often better to keep business and family concerns separate from each other.

Crowdfunding

Other small business owners look for alternative loan options by using crowdfunding. By setting up an online crowdfunding campaign, your business can ask your social media followers, friends and fans to contribute  money to help fund your business’ next phase of growth.

Advantages: Online crowdfunding platforms like Kickstarter, GoFundMe and others give you the power to raise money to support your business, whether it’s funding for new product development or for any other specific purpose. By giving away prizes and using other participation strategies, you can motivate people to give more money – for example, by giving donors a special behind-the-scenes experience or an early-stage sample of your new product.

Drawbacks: Crowdfunding is flexible and adaptable, but that same flexibility can also make the results unpredictable: according this Kabbage article, the typical crowdfunding campaign takes about 9 weeks and raises an average of $7,000. Depending on how much time you have and how much money you need, crowdfunding might not be the best fit for your goals.

Platform Lending

With banks making it more difficult for small business owners to get loans, a variety of online services known as “platform lending” services have come onto the market. Kabbage is one of these online platform lenders where business owners can get loans more quickly and often more effectively than they could from a traditional lender.

Advantages: Platform lending is often a good option for people who have less-than-perfect credit. Also the loan amounts offered by platform lending services are often a better fit with what small business owners are seeking – for example, $40,000 to $100,000. Another advantage of platform lending is that the approval process is more flexible and relevant to small businesses than the traditional bank loan process; for example, platform lenders tend to look at a business’ online sales and social media following and other metrics to show the creditworthiness of the business that are separate from the traditional approach of looking at credit scores.

Drawbacks: Platform lending tends to charge a slightly higher interest rate than a typical bank small business loan. Make sure to do your research and understand the fine print of any platform lending agreement before you sign – just like you would if you were signing up for a new credit card or other financial product.

If your business is struggling to get approved for a bank loan, don’t get discouraged – get money! There are more alternative loan options than ever before, especially if you are able to be creative and flexible and pursue some new services like platform lending.