Alternative lending has transformed small business finance by giving merchants access to faster, more flexible funding outside of traditional banking channels. Companies like Square, PayPal, and Amazon have leveraged their existing merchant relationships and transaction data to make lending decisions in real time, allowing them to serve businesses that often need capital quickly. As loan volumes continue to grow, these fintech providers are demonstrating that technology-driven lending models can compete directly with banks by delivering speed, convenience, and a more seamless borrowing experience.
Square Capital’s loan volumes doubled each year since 2014. Within 3 years, small business quarterly loan volumes stand at $320 million. Square placed nearly $2 billion into the small business market since it began.
Square is not alone. Top competitors in the space are Paypal and Amazon.
PayPal (PYPL) and Amazon (AMZN) are also players in the alternative financing and lending market since they supply small loans to their customers.
PayPal and Amazon have each extended between $2.5 billion and $3.0 billion in small business loans since launching their credit operations.
This is the tip of the iceberg.
Polsky Center estimates that alternative loan volume was $34.5 billion in 2016, implying that the market expanded by $6.2 billion over the previous year.
the alternative lending industry is forecast to grow to about $1.0 trillion in the coming decade.
With all that growth you have to wonder where banks are. Perhaps Alt Lending is the new norm.
The continued growth of alternative lending suggests that it is becoming a permanent part of the small business financing landscape rather than a niche offering. By using transaction data and digital platforms to streamline underwriting, companies like Square, PayPal, and Amazon have created lending models that meet the expectations of today’s business owners. Traditional banks still play a critical role in commercial lending, but they face increasing pressure to modernize their processes and customer experience. As alternative lending expands toward a trillion-dollar market, competition will likely focus less on access to capital and more on the speed, convenience, and flexibility of the lending experience.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
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