When Banks and Credit Unions Won’t Lend, There Are Alternatives

I remember first learning about credit and consumer lending in junior high school. Everything my classmates and I were taught was from the point of view of a bank loaning money so a consumer could buy a house, car, etc. It wasn’t until I became an adult that I learned about alternatives. I was in my 20s when I found out there are other places to go when banks and credit unions will not lend.

Most of us are familiar with banks and credit unions because they are the primary consumer lenders. For many needs, they are a fine source of financing. But there are times when seeking out an alternative is a better move. Let’s take a look at a few examples.

Buying a House – Mortgage Lenders

Not all mortgages are written by banks and credit unions. And in fact, a fair number of them are not. Instead, they are provided by private mortgage lenders. Private mortgage lenders are financial services companies that specialize in residential mortgages. They don’t offer retail banking services of any kind. In fact, they do not even make any other kinds of loans.

One of the advantages of working with a private mortgage lender over a bank or credit union is getting a better deal. Private mortgage lenders can also assume more risk, so they are able to write loans for people who would not otherwise qualify through a traditional bank.

Real Estate Investing – Hard Money Lenders

Real estate investors typically struggle to obtain financing from banks and private mortgage lenders. Why? Because real estate investment is considered risky. Investing presents more risk than traditional lenders are willing to take on. Fortunately, investors have an alternative in hard money lenders.

Salt Lake City’s Actium Partners says the majority of hard money loans written in this country go toward financing property investments. It makes sense. Firms like Actium can take on greater risks because their businesses are structured to handle it. The same is not true for banks, credit unions, and private mortgage lenders.

Unusual Needs – Private Lending

Every now and again a borrower will have an unusual need that is difficult to finance through traditional means. It might also be a need that isn’t quite appropriate for hard money. The best alternative in such a case is private lending. Private lenders are individuals or loosely organized groups willing to loan out their own money.

A private lender might provide long-term financing to a developer unable to procure funding from a hard money firm. A less conventional private loan could finance an investment in rare art or other collectibles. It can be utilized to help a business expand.

Business Needs – Crowdfunding

Businesses sometimes struggle to obtain small business loans or equity funding. Banks and credit unions will not touch them, so they have to go elsewhere. A popular option these days is crowdfunding.

Through crowdfunding, companies can raise substantial sums by appealing to large numbers of smaller investors. In exchange, the investors are guaranteed some sort of financial or material return on the amount they contribute. In most cases, crowdfunding is the domain of startups and entrepreneurs.

I could continue this list of alternative funding sources to include things like peer-to-pee (P2P) lending, invoice financing, microloans, and even merchant cash advances. I will not because I am out of space. Here’s the point: just because a bank or credit union won’t fund a particular need it does not mean that financing is impossible. It does mean that a borrower needs to look around for alternatives. Banks are not the only game in town.