Loan Evaluations co-owner, Kyle Waters, talked to New Orleans City Business about the pros and cons of alternative loans from “shadow banks”.
New or small businesses turn to alternative lending for fast, no-hassle sources of funding, but bankers are urging them to read the fine print first.
The trend toward alternative sources of bank loans started mainly because of government regulations of banks and banks themselves pulling inward during the recent national recession to ensure loan quality. Some call these funding sources “shadow banking,” or alternative lenders, and many are not regulated in the same way that banks are.
Alternative lending remains small when compared with traditional banking, accounting for an estimated $9 billion in loan volume last year, according to AmericanBanker.com. Alternative lenders such as CAN Capital, IOU Central and Kabbage are shelling out fast cash to businesses in need. For example, OnDeck has loaned $2 billion to more than 700 industries since it opened in 2007.
Borrowing from traditional banks is not always possible, especially for new, startup companies or businesses under a bit of stress.
“Alternative lenders may be a reasonable resource, but beware,” said Kyle Waters, owner and manager of Metairie-based Loan Evaluation Services. “Rates are higher to compensate for added risk.”
He added that the terms may not match the company’s needs.
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