CYR Funding: The Private Lending Stigma: What is alternative lending and how could it help you?
Alternative lending is a fairly broad term that is used to describe the wide range of loan options available to both consumers and business owners outside of a traditional bank loan. There are many reasons one might seek out alternative lenders but the most common is the inability to secure a loan with a more traditional lender.
There may be many reasons a bank will say no, especially given the new federally mandated stress test requirement for mortgages introduced earlier this year. Bruised credit however is not the only reason people seek out private lenders. It may also be because of the type or location of the property you are looking to secure a mortgage for – or for another reason entirely. Alternative lenders are not bound by the same regulations and can offer solutions that banks just can’t.
A private lender can help you close a deal when you cannot qualify with a bank or b lenders. The reality is that sometimes life happens. Sometimes you get yourself into a bad situation with your credit and that can be really difficult to recover from. Sometimes your credit is fine but it’s difficult to prove to a bank (like when you are self-employed or new to Canada). Or sometimes you see an opportunity in a piece of property that a traditional lender isn’t willing to take the risk on,
Alternative lenders get a bad rep because they have higher interest rates. The fact is that is the cost of doing business with “high risk” lenders. A person or property that does not meet certain requirements is not deemed as safe as other investments. Where a bank will not take on the risk at all, a private lender will – but the interest rates are reflective of that risk.
The good news is that working with an alternative lender can take you from being high risk to being eligible for other options. In the best case scenarios alternative lending is meant to be a short term solution that will help you to achieve your long term goal.
Don’t be afraid of higher interest rates
Higher interest rates seem scary, but they are nothing to be afraid of if they are helping you keep your payments manageable. An interest only loan for example, (a loan whereby you make only the interest payments for a term of 5-7 years), will keep your monthly payments low ensuring that you are able to make them.
You may want to seek out an alternative lender if you want cash fast.
Since alternative lenders tend to be more flexible than traditional banks with things like loan approval and repayment schedules they often can and will provide cash much quicker than the traditional banks. Again, as the lender is taking on a higher risk, the interest rates will usually be reflective of that. However, that cost may be worth it to get your money fast. Many small business owners would not have been able to get off the ground without the financing of an alternative lender. Businesses that have gone on to thrive.
If you think an alternative lender might be right for you, contact us today!