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Although we have been in the middle of a start-up boom in the past 5 to 10 years, where basement projects turn to billion-valued business in a matter of months, the main reason for which people are cautious in whether to take the leap and start their dream projects is what they generally call "lack of money".

Let's get one thing straight: money exists in various iterations, places and in various people's hands. What makes people consider that what keeps them from following their dreams is a lack of money is actually a lack of money able to be obtained easily, without major implications (at least on the short and medium term). The downfall of getting swift access to money is that a lot of individuals without actual understanding of finance basics such as repayment term, compound interest and the likes get access to large loans which lead them to perdition rooted deep in their misconception over loans and traditional banking system.

While educating people is a macro-level target for which countries as a whole should enlist necessary resources, and since this is done over the course of several decades, it's more practical to tailor financial business to needs and knowledge of the average Joe.

MortgageGuidelines.net did a pretty good job recently in listing all the available "easier" methods to gain access to money in dire times. Their piece focuses on loans with short-to-short-medium repayment term, ranging usually between 1 and 24 months. Although not all methods provided are regulated all around the world, the trends are given by the US and UK, so it is normal that similar alternatives will rise in other parts as well.

  1. Peer-to-peer business lending has become the darling of money remittance in the past couple of years. Funding Circle leads the pack, offering businesses up to GBP 1 million which is sourced from individuals, investors or other entities directly contributing, at annual rates of 6.9 pp per year. It has already granted more than half a billion GBP in loans.
  2. Cash advance means getting small amounts of money and repaying it automatically with a limited amount directly taken from your credit / debit card daily turnover. This type of loan is usually unsecured, since it involves "over-the-counter"-ish remittance of money. There are several companies operating in this field.
  3. Short-term lenders are probably the most common category, being found in several countries around the world, even if the process is not automatic. Loans here are in the thousands up to tens of thousands $/GBP, and repayment rates vary based on individual credit record. The advantage (if you can call it that) is they accept bad credit businesses as well as good credit, bearing more risk than traditional bankable loans.

The threat may be limited, but in 4-5 years, as operators in these areas emerge in scores and as regulations will address their activity, banks will have to re-design their loan portfolio in order to still be relevant.

Tag(s) : #startups, #entrepreneurship, #funding

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