Twenty years ago, only the big banks had the resources and infrastructure to run a full-fledged lending operation. Now, there’s no need to open a bunch of brick-and-mortar branches or develop your own secure automation solution from scratch.

In fact, all it takes is sorting out documents with your local authorities, getting reliable software to run your business and taking care of the marketing side of things.

This type of environment has nurtured alternative lending into what it is today. Things like peer-to-peer lending, small to mid-sized loans and in-house financing all fall under the umbrella of digital and alternative lending.

And it’s taking the financial world by storm.

The reason why alternative lending is such a big deal — other than the fact that it makes the lives of regular borrowers easier and credit products more accessible — is that it can compete with the banks.

As of 2019, there are still 2.45 billion underbanked and unbanked people in the world. The more innovative lending companies there are, the faster this market will be covered and served.

As customer acquisition prices in developed countries continue to increase and technology becomes more and more accessible and affordable, global financial inclusion becomes a more realistic future scenario.

Due to today’s ease of starting a company, lending startups appear every day. The craze isn’t as all-consuming as ICOs in 2016-2018, but still, there are dozens of new companies fighting for big bank clientele.

But, not all of them are good.

That’s why I’ve decided to draw up a shortlist of lending startups worth paying attention to. Those that have proven their legitimacy, raised significant investments, moved the lending tech forward and offer an original concept.

These companies have shown that lending and investments have evolved to be effortless and stressless.

1. October EU (formerly Lendix) is an innovative, easy-to-use, and intuitive peer-to-peer platform for lending and investing. With October, the process of getting a loan consists of three steps:

  • Submit an application to see how much money you’re eligible for.
  • Get a confirmation from October’s in-house analyst within 48 hours.
  • Get money from an investor on your bank account within a week.

The company offers a great balance between the security of funds for lenders and the simple process for borrowers, which is reflected in reviews on Trustpilot. The peer-to-peer business model has already led the company to become one of the biggest SME lending marketplaces in Europe with more than EUR258 million (US$294 million) disbursed in funding.

2. Dharma

The Dharma team works on a platform that lets businesses build lending products on the Ethereum blockchain. Even though the crypto-hype is cooling down, there are still many potentially awesome applications for the distributed ledgers.

The goal of Dharma is to tokenize dept instruments which can have unlimited lending regardless of fiat currencies. Lenders can use the technology in a wide spectrum of ways, from peer-to-peer lending to corporate bonds or microloans.

There are several roles users can have within the system: debtors (people who need money), creditors (who look for attractive investment opportunities), underwriters (who help evaluate risks of a loan) and relayers (who help creditors find good opportunities).

Of course, blockchain-based lending isn’t for everyone. It suits specific use cases, where the distributed database addresses the needs of the system best.

3. Kabbage

The governing idea of Kabbage is that funding shouldn’t be complicated for businesses. So, the company makes an effort to provide entrepreneurs with up to US$250,000 in loans for which you can allegedly qualify for in just 10 minutes or at most, a day.

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That’s a big differentiator Kabbage has from many modern alternative lenders.

The company’s well-being was supported by a huge influx of US$250 million from SoftBank Group which is reasonable given Kabbage’s 115,000 customers and US$3.5 billion in loans.

The company really does offer great services and products which are reflected in their customer’s loyalty. Reportedly, an average customer uses Kabbage’s loans 20 times over three to four years compared to the industry average of 2.2 years.

4. TurnKey Lender

Founded in 2014, TurnKey Lender has already become the market’s leading intelligent all-in-one lending automation platform. It has probably already outgrown the term ‘startup’, but the company still functions as one.

The goal of the team (which I’m a proud member of) is to achieve fair and accessible lending on a global scale. The company uses AI and big data to automate and streamline all the elements of a lending process. Everything from origination to underwriting, to servicing and collection, is done by the easy-to-use system.

The company offers boxed and enterprise-based solutions for cloud lending, retail, payday loans, microfinance, lease finance, medical and dental, telecom. These solutions are suited for the alternative, SME, peer-to-peer and direct lenders, auto financing, mortgage, community banks and credit unions.

5. SoFi

The name SoFi comes from social finance and it’s another great example of a successful peer-to-peer lending operation.

Founded in 2011, the company is already a huge market player with US$30 billion worth of funded loans and 600 thousand members. The key to SoFi’s success lies in its efficiency and digitalisation. They make it possible for the company to make money while growing by keeping low rates and granting bigger savings to the clients.

Other than saving on brick-and-mortar branches and other operating expenses of an old-school lender, what makes this company special is their selective approach to borrowers. In their own decision-making process, the team takes into consideration some of the more unorthodox factors like estimated cash flow, career, and education.

As a result of smart risk mitigation, way more borrowers pay them back. And due to that, SoFi can reduce interest, grow a reliable and loyal customer base, and still — make money.

6. Affirm

Affirm goes a different route than most alternative lenders. The idea behind it is enabling in-house financing for retail businesses. So, the store’s customers get an instant loan with zero to 30 per cent interest rates.

It works like this: Affirm processes businesses orders, gives money to the seller, and then deals with the borrowers on their own. The idea has proven to work quite effectively with tons of retailers jumping on board.

7. Lendio

With quite a unique approach, Lendio offers small business an opportunity to get services and credit products from lenders with the best conditions. It’s a marketplace with more than 75 lenders on board. The system helps you work with any and all of them to make sure your business gets the best treatment.

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The company strives to make the whole process of getting a loan as easy as possible, boiling it down to just 15 minutes. Lendio mainly focuses on small business owners which have led them to serve more than 40,000 loans to date.

The next big goal for a company is to help businesses get at least US$1 billion in loans each year.

Final thoughts

Of course, the end-users still have to be very careful in choosing the company they are going to be in debt with, but getting a safe low-interest loan has never been that easy.

Some say that these startups can become the new financial market moguls who control the rates and set their own monopolistic rules. But it’s very unlikely to happen due to the fact that the industry’s entry barrier has gotten a lot lower.

Rather, they are examples of how the whole economic system is moving in the right direction. More people have a chance to start a lending business, become an investor or get a loan on attractive terms.

There will be bumps on the road, but the trend we’re seeing with alternative lenders and lending platforms is a good one, both for communities and for the more general well-being of the society.

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