Once considered a very small niche within the lending market, peer-to-peer lending is starting to go mainstream. Recently, two such lenders, Lending Club and OnDeck Capital, have both raised several million dollars each by going public through their respective IPOs. What is the secret to their success? Millennials. More and more millennials it seems are establishing businesses and are in need of raising capital. Previous generations went through traditional sources such as banks, but millennial business owners appear to prefer peer-to-peer lending groups. Here are five reasons millennials prefer alternative lenders rather than traditional lenders.
5 Reasons Millennials Prefer Peer-To-Peer Lenders
- Credit issues are less of a concern. Many millennials are first-time borrowers. They may lack a credit history, especially if they are just out of college. Traditional lenders prefer older applicants with a long-established credit history or a stellar credit rating. Many millennials are saddled with school loan debt and may not have a high credit rating score. Alternative lenders are more open to such applicants.
- Quicker response and less red tape. It’s no secret that banks are conservative when it comes to lending. They tend to require vast amounts of paperwork and research before approving a loan. Peer-to-peer lending is much more straightforward and the paperwork takes less time. The approval process for an alternative lender is much shorter than loan approval or denial from a traditional banking institution.
- The social platform is recognizable. Millennials grew up in the age of social networks. They are used to interfacing with one another using these types of platforms. Alternative lenders use the popularity of social networking to their advantage when building their platforms. Traditional lenders are slow to adapt to social platform technology. Loan officers tend to be viewed as standoffish and impersonal by younger applicants. Alternative lenders are humanizing the process of lending by using such social platforms.
- Lack of business experience isn’t as much of an issue. Again, due to the age of many millennial loan applicants, they tend to be first-time business owners. Traditional lenders feel that approving a loan for a first-time business owner is too much of a gamble. Alternative lenders are more willing to lend to such applicants. Lack of experience is no longer considered a black mark on a lending application. Prior to the establishment of alternative lenders, many first-time business owners would only be able to obtain loans through family and friends or not at all.
- Greater trust with online platforms. Older generations are still not comfortable with applying for loans online it seems. Many older applicants still prefer to apply for a loan directly with a banking institution. However, millennials are used to doing everything online. The idea of applying for a business loan online is not daunting to them.
Fintech is growing in popularity and changing the way businesses borrow and lend money. As peer-to-peer lending becomes even more popular, traditional lending institutions such as banks will no longer be able to ignore this type of competition. Finance is on the verge of experiencing a disruption, similar to taxi services with Uber and hotels with Airbnb. Even the U.S. Small Business Administration admits that lending practices need to be modernized due to technology advancement. The potential for this type of lending is just starting, and as usual, the millennial generation is leading the change.
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