Worldwide, banks and traditional finance providers are no longer the dominant players in the personal and business lending space.
In the US, only around 13% of small business loans are approved by banks each month. Alternative lenders are picking up the rest.
The systemic risk of dealing with major banks is one factor. The ease of doing business with agile web- and cloud-based lenders is another.
Looking for a loan in South Africa? Here are the alternatives
So, what are the alternatives to business bank loans in South Africa? Why is this niche lending sector booming in 2025?
Peer-to-peer lending
Peer-to-peer (P2P) lending is an alternative financing option where private lenders connect with potential borrowers on an online platform.
This lending model is popular for two reasons – lenders and borrowers get a higher rate than they would at a traditional bank, and transactions are entirely web-based.
P2P platforms have strict criteria for the use of the funds. You can expect to pay comparatively high fees for the facilitation of the loan.
If you fail to meet the repayment terms, you’ll be handed over to debt collectors. This is a significant black mark on your credit record.
Advantages of P2P lending:
- more attractive interest rates
- flexible repayment terms
- quick and convenient online process
- large and small loan amounts are available.
Asset-based financing
One increasingly desirable solution is short-term asset-based business loans. With this type of funding model, cash is released against qualifying personal or business assets.
The typical turnaround time from application to accessing capital is around 24 hours.
Entrepreneurs and small business owners typically use accounts receivable, balance sheets, inventory, machinery or equipment to secure loans.
Other lenders, such as LoanAgainst, issue loans against high-value items – luxury wristwatches, jewellery, art works, handbags, delivery vans, company cars and boats.
The available financing is based on the appraised resale value of the asset. Approvals are virtually guaranteed. Transactions have no impact on the client’s debt, repayment history or credit score.
Why apply for an asset-based personal or business loan?
- quick loan approval times
- rapid access to funding
- low risk
- no credit checks
- relaxed qualifying criteria.
Invoice financing
Invoice financing involves using a business’ unpaid invoices as collateral for a loan. This type of alternative financing option improves cash flow by unlocking the funds tied up in unpaid invoices.
It can be a straight loan as in invoice financing. Or it can be a cash advance of a percentage of the invoices’ value. In this instance, the business sells the unpaid invoices to the lender in a process known as invoice discounting.
One disadvantage of invoice financing is lenders typically take a hefty commission. Another is risk. If your clients don’t pay the invoices, you’re in trouble.
Benefits of using invoice financing to boost cash flow:
- immediate access to funds
- no restrictions on the loan
- confidentiality
- no collateral required.
Why the alternative lending market is booming in 2025
Strict lending requirements, tedious application processes and slower approval times are forcing more and more small businesses to seek funding elsewhere.
That is a snapshot of the practical difficulties facing entrepreneurs, start-ups and small businesses in South Africa.
When you take into account the fact that millions of South Africans have no credit history or the existing track record is too lean to generate a credit score, then qualifying for a bank loan is often out of the question.
Global bank collapses
Another factor driving the transition to alternative lenders is the elevated risk associated with banks – in the US, UK, Europe and in South Africa.
The negative sentiment is underscored by the recent back-to-back failures of the Silicon Valley Bank and Signature Bank, high-profile collapses that had dire consequences for the global economy.
As an article in Forbes points out, banking failures are not an anomaly. In the past 24 years, 569 financial institutions in the US have failed.
South African banks not immune to systemic risk
In South Africa, the stats are as unnerving. Since 1990, 13 banks have been put under the curatorship of the Reserve Bank. The most recent, the VBS banking scandal, was caused by a combination of bad management, liquidity issues and looting.
Business owners are loath to entrust their futures to an increasingly volatile and high-risk banking sector. That, together with the roll-out of efficient and affordable online and mobile funding solutions, is the core driver of a flourishing alternative lending segment.
Looking for alternatives to bank loans in South Africa? Apply for a short-term secured business loan online through LoanAgainst – suitable for individuals, start-ups and SMEs. We offer personal loans against luxury assets too.
