Responsible Lending: Alternative Business Loans Vs. Payday Loans
At UCapital, we encourage the use of alternative business loans among small business that are in need. Our business model exists to connect those businesses in need of financing with a source, but we are stringent with our decisions. We loan capital at reasonable rates, avoiding the excessive repayments of the payday lender, while relying on our judgement that we have chosen a responsible client with whom to do business.
The similarity between Payday loans and alternative business loans is only the lack of security: neither require a form of collateral to acquire the cash. However, that is where the similarity ends.
Far from providing reasonable rates, like we do at UCapital, payday loans charge exorbitant interest rates on its loans. The reason? When you offer loans to almost anyone, you will by nature find that a good number – domestic estimates place it at 20% – will default on their loan, and will not be able to pay back their capital. That 20% is essentially a sunk cost to the industry.
In order to cover this cohort of defaulters, these lenders are obliged by their balance sheets to charge higher interest than what is reasonable. Coupled with flashy advertising across a variety of mediums, they peddle this form of finance to many households in Australia, many of whom have a skewed view of their own income and budgetary needs.
This form of lending can be disastrous to the household. Unable to pay the exorbitant cost of servicing the loan, these households often pay dearly for the short-term benefit of cash. Inherent to the business model of the payday lender is a brutal treatment of those who default, and a broad, sweeping marketing angle, incorporating the ruinous end result of their loans as a cost of business. Often, borrowers, will pay two, even three times the initial value of their loan, by the time they are able to finally pay it off.
Alternative business loans do not deserve such a stigma. If you have a great idea, and the follow-through to make them bear fruit, you deserve finance at a reasonable price. At UCapital, we service the small businesses in Australia who cannot access solid finance on their own, due to banking regulations or lack of individual treatment. We avoid pigeonholing our clients in to broad groups, believing that each case is different, and that a lack of capital does not make a poor borrower. We help fill a void in business financing that has been left empty, but without the predatory deception of the payday lender.