Feb 5
How Alternative Funding Sources are Gaining Traction in India?

How Alternative Funding Sources are Gaining Traction in India?

Bank loans are indeed one of the best ways to get those much-needed funds. Irrespective of whether the requisition is a personal one or business related, banks and financial organizations offer tailor-made loans to all. However, over the years, the lack of proper regulations along with the inability to recover the money lent to the borrowers, have led the banks to become more careful when offering loans to people.

In fact, most banks and financial organizations conduct a number of background and document checks before agreeing to offer a loan to a person or an organization. Getting a loan approved seems to be a difficult task. In such a scenario, people with low credit scores or any other issues might find it hard to get a loan. This is what leads them looking for alternative methods for sourcing funds.

Alternative fund sourcing in India is slowly gaining traction what with startups making their way to the business scene. The best part is that with this source gaining momentum, people are now able to get loans for their personal needs as well.

Let us take a look at some of the important alternative funding sources that are gaining popularity with the modern generation.

  • Equity Crowdfunding:

This is the method used by startup companies to raise funds for their operations. In this, they reach out to the people online and offer their equity shares in exchange for the much-needed funds. Thus, they are saved from tapping the doors of the conventional financers. Venture capital firms and angel investors are mostly what these startups target for getting the finance.

  • P2P Personal Loans:

Considered to be insecure loans, these are generally used by people, who need emergency funds for organizing a wedding, going on a vacation or repairing a house. Though banks offer personal loans, the rate of interest on these is quite high. This is one of the main reasons why people seek alternative funding source in India. P2P platforms have proven to be blessing in disguise for such people as these offers personal loans at a considerably lower rate of interest.

  • P2P Platforms offering Business Loans:

Banks and financial organizations tend to charge a higher rate of interest from startups and not so established firms. However, sometimes, it might be difficult for these firms to pay this rate considering that they are in the initial stages of their operations. Thus, they look for alternatives to raise the much-needed funds. With P2P platforms gaining popularity, they often turn to these for finances. Since no collaterals are required to secure a loan and the interest rates are low, these surely seem to be a better option than the conventional method of borrowing from a bank or a finance firm.

  • P2P Education Loans:

Education loans are much in demand in India what with the students looking forward to getting into premium universities across the globe. However, securing one is easier said than done given that you need to offer collateral and also have to agree to high-interest rates. But thanks to the P2P platforms, now education loans are being offered at lower interest rates and considerably low risks. What’s more, there are a few sites that even offer a choice to raise the funds for the student loan as a donation.

With these alternative funding sources in India now gaining in popularity, the financial scene is surely in for a great change. According to the studies, the amount of alternative funds that were lurking at INR 24873 crores in 2015 has suddenly grown to a whopping 1 lakh crores in June 2017.

According to financial experts, this surge in the alternative funding sector can be attributed to great returns that are reaped by the investors as well as the relaxation in the regulations for both the borrowers and the lenders.

With the alternative funding sources making their presence felt in the Indian market, banks and other renowned financial organizations are facing steep competition. But, this new funding idea has surely proved to be a boon for the people and small organizations that were earlier finding it hard to secure loans.

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