If you’re in the retail game, then this is the time of year to rub your hands with anticipation. Australian Retail Association statistics predict that Australians will spend nearly $50B in the six weeks leading up to Christmas – and a further $13B in the post-Christmas sales stampede.
This is exciting news – but you can’t sell what you don’t have and, as your store begins to bulge with the level of stock you need to take full advantage of this, your bank account will be taking a nosedive in the opposite direction.
Traditional solutions can prove expensive
Cash flow management becomes a very real issue for many retailers and can leave them financially squeezed during the December run in. For many, the solution is to take out unsecured business loans and overdraft facilities to help them through this period, but this sort of business finance comes at a cost that includes a hefty margin for the middlemen involved.
Until recently, retailers have had to rely on bank overdraft facilities, expensive credit card debt that can charge up to 20% interest or short term small business loans that can come with expensive set up fees. Now there’s a new solution.
You can now borrow more easily and at better rates than the banks
Marketplace lending for small businesses, often known as peer to peer lending, matches private investors with businesses seeking loans. The result – a lowering of the margins that traditional lenders take, meaning an improved borrowing rate for the business involved and a better return achieved by the lender. Marketplace, or peer to peer lending, has become one of the fastest growing areas of business loans and banks are fast realising that they now face very stiff competition in an area where they previously achieved above average profit margins at the expense of the borrower. Peer to peer lending is a continuation of the online sharing economy that has seen the growth of AirBNB and Uber hitting traditional business models – now it’s the turn of the banking sector.
How does it work?
As a borrower, you can apply online in a matter of minutes through a lender like Bigstone. You can choose the level of borrowing you require and the length of time you need the funds for. Your risk level is assessed to determine the interest rate and fees you will be charged and once you agree and complete the online documentation your loan is put out to the marketplace for a period of fourteen days. Investors can then agree to fund all or part of your loan. Once the level of funding is pledged the funds are then available for you to access.
Is there a downside?
In many ways, these short term small business loans operate in the same way as traditional bank financing. The borrower can be confident knowing that the funds will be available for the period required without having to pay the various fee structure that banks have added in. If working through a marketplace lender like Bigstone, approval for loans up to $250,000 can be secured in a matter of hours and payment received within a couple of days. There is no penalty for early repayment. All funds are invested through a trustee arrangement meaning any change in the circumstances of Bigstone will not affect the obligations of either borrowers or lenders.