The reputation of the alternative lending industry is suffering due to the proliferation of exposés using isolated incidents as circumstantial evidence aiming to delegitimize the industry as a whole.
It is imperative to address this hot button issue. Why? Because lone wolf incidents aside, alternative lending is the backbone industry of small businesses which, as profiled, make up 99.9% of all businesses in the United States. Through this industry, companies are granted the opportunities to build themselves up — opportunities which they may not otherwise have been afforded by route of traditional bank lenders. When such businesses are given the tools to get up and running, many end up prospering and doing well for both their employees, customers, and the economy as a whole.
When NDP Analytics crunched the numbers, it found that $10 billion in online lending between 2015 and 2017 generated $37.7 billion in gross output and created 358,911 jobs. Without those loans, a population larger than the city of St. Louis wouldn’t have a job.
According to Forbes, only half of all small firms receive the funding they request in spite of the well-documented statistics of growth and job opportunities that they contribute to the economic community at large. It is clear that there is a lot at stake. If the reputation of the alternative lending industry continues to suffer, many upstanding businesses will be negatively impacted, and the success of thousands of small businesses will likewise follow suit.
“Predatory lenders… loan-sharking… abuse of power… mafia practices.”
Such attention-grabbing catchphrases circulate the web in the form of sensationalist pieces of journalism presented as juicy exposés of — to paraphrase the chatter — the “shadowy underworld of the merchant cash-advance industry”. Recent headlines have created much unsubstantiated hype in relation to these businesses.
Isolated cases have raised the ire of many, and rightfully so. For example, reading the account of a visit from a lender named Gino would make your blood run cold.
Yet with all the horror that can be dredged up on the internet, to make a claim that such incidents are common or characteristic of alternative lenders is ludicrous. Thousands of interactions and relationships between customers and businesses are cordial and without incident. It is therefore necessary to keep the scandals in perspective.
After all, abuse of power is rampant; not just within businesses, but in politics as well. Yet should an entire industry or political party be left to wallow in the dirt of a few series of articles that went viral? Any well-educated media consumer would not accept the delegitimization of an entire industry so easily.
Yet clickbait is all too common. It grabs the attention of readers, after all. What happens when these articles are left to proliferate, is that the alternative lending industry is wrongly characterized by several fringe procedures, such as the practice of usury.
Using the practice of usury to slander the industry is akin to comparing apples and oranges. One has nothing to do with the other. The description of the nature of the industry outlined in the next paragraph will clarify how a merchant cash advance company operates. Usury is nowhere to be found.
This is not to say that you won’t find a lender resorting to unethical practices, just as you will not find a hospital without a case of malpractice. Yet using lone incidents as arguments in an exposé to paint the entire medical community scandalous as a whole would be preposterous.
After all, misuse of power happens all the time. There are always going to be bad apples in the bunch. Take a look at Wells Fargo and their string of scams, or at this list of accounting scandals. Yet your average doctor, banker and accountant will not suffer, as long as they maintain upright standards in their personal practices. The reputations of the industries as a whole are not at risk, because the nature of the businesses are understood. So perhaps, it is important to provide a clear description of what an alternative lender does in order to clear up the confusion.
How does the alternative business loan industry work? A start-up business in its first year of operating will not be approved for a business loan with a bank within the first two years of inception, or if the business or owner has bad credit.
Such a company has the option to turn to an alternative lender for a smooth transaction that has no strings attached and can even build their credit. The service of an alternative lending company fills a void, enabling businesses to grow and expand without the ominous shadow of interest looming over their heads.
In the financial market, buyers are lenders and sellers are borrowers. This means that in a typical transaction with an alternative lender, the customer is essentially selling a future of sales at a discount. All terms and conditions are upfront and the customer never pays more than what they sign for. Therefore, customers can obtain loans without the concern of being charged interest.
Of course, the alternative lender needs some form of protection against the risk that characterizes the very nature of the financial industry. This is where a confession of judgment comes into place for types of transactions.
In the alternative lending industry, documents called confessions of judgment may occasionally be utilized in the process of sealing the deal. A confession of judgment is a signed document through which one party knowingly permits the other party to take judgment against them, should certain conditions be violated. Should this be the case, the defendant would be able to circumvent the normal lengthy legal process involved in resolving disputes.
It’s for the benefit of the industry as a whole. The use of such a document ensures that there is a form of protection in place against possible risk. The affidavit is simply a form of security. Alternative lenders, like any other business owners, need to protect themselves from potential pitfalls.
Still, corrupt individuals are out there. Of course, these cases attract attention and that is why it is easy to spread smear campaigns. Yet we must remind ourselves of the responsibility we have to educate ourselves, so as not to fall victim to the trap of sensationalism.
The responsibility ultimately lies on the shoulders of the public to remain aware. Look deeper. Get in touch with your local lender. Talk to small businesses. By placing the emphasis on good relationships between business and customer, there is nothing to lose and everything to gain.
The tide is slowly turning. The Wall Street Journal has recently featured a piece about the benefits of online lending, including the following first-hand account of a business owner who went through the process and ultimately found success with alternative lending.
Getting Better Fitness owner Javid Jenkins once sought a business funding from a bank but found terms more stringent than those for home or car loans. He got a short term business loan from Kabbage but wasn’t happy with the 25% interest rate. (To this, Kabbage spokesman Paul Bernardini later responded that the company’s financing helps more than 175,000 U.S. customers and that its website features many success stories of clients underserved by traditional banks. He also said the company’s disclosures, including the true cost of a business loan, are easy to understand.)
Either way, because of a reasonably good credit history Jenkins decided to go another route after his funding round from Kabbage. Mr. Jenkins has been happy with financing from another alternative lender, PayPal Working Capital. Payments come off the revenue of his Chicago gym and it works for his business.
So as we can see, the alternative lending industry provides golden opportunities to countless businesses. Investing in a business is always a leap of faith, but with the right support from a reputable alternative business loan company, every business can be provided with the opportunity to thrive on fertile ground for success. Such opportunities are invaluable assets to the growth of communities and the economies they are built on. It is our vital mission to restore the reputation in order to ensure continued stability.
