Klarefi

What is an alternative lender?

An alternative lender is a business lender that is not a traditional bank. It lends its own money or money from investors and credit lines, not from customer deposits. Examples are online lenders, invoice finance firms, asset finance houses, bridging lenders and private credit funds. It is also called a non-bank lender.

Published

How lenders use it

Alternative lenders often serve borrowers a bank turns away or serves slowly. They may specialise in one product, such as invoice finance, equipment or bridging loans, so their credit teams know the asset or market well.

They need funding. Many borrow from banks, funds or investors, and those funders review the lender's loan files. A funder wants to see that each loan has the right documents, checks and approvals. File quality can decide how much funding a lender gets.

They usually move faster than banks, which is a main reason borrowers choose them. They also tend to charge more, because their cost of funds is higher and they take on riskier or more unusual cases. Speed depends on how quickly the file is complete.

Rules depend on the product and country. Lending to a company is often not regulated as consumer credit, but anti-money-laundering rules and licensing rules can apply. Lenders confirm what applies to them.

Worked example

Example only. A non-bank lender borrows from a credit line at 8% and lends to small businesses at 14%. The gap is 6 points before costs and losses.

From that gap the lender pays staff, systems and bad debts. If bad debts cost 3 points and running costs 2 points, 1 point is left as profit. Delays and rework eat into that margin, so the cost of handling each file matters.

Common confusions

A challenger bank is not an alternative lender. A challenger bank holds a banking licence and takes deposits. An alternative lender does not.

Alternative lender and shadow bank are sometimes used as if they mean the same. Regulators use non-bank financial intermediation for a wide group. Alternative lender usually means a business lender serving companies.

Alternative lender does not mean unregulated. Many are authorised or registered for some activities. The rules depend on the product and the country.

Questions lenders ask

What is alternative lending?

Lending to businesses by firms that are not traditional banks. They include online lenders, invoice finance and asset finance firms, bridging and development lenders, and private credit funds.

How do alternative lenders get their money?

From investors, credit lines from banks, debt funds and their own capital. They do not use customer deposits. Their funders usually review loan files and results.

Why do borrowers choose alternative lenders?

Speed, flexibility and willingness to fund cases a bank will not. The price is usually higher. The borrower pays for faster decisions and a wider view of risk.

What is the difference between a non-bank lender and a challenger bank?

A challenger bank has a banking licence and takes deposits. A non-bank lender does not take deposits and funds its loans from other sources.

This page is general information for lenders. It is not legal, tax or credit advice.

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