By Brad Powell

Welcome to the third in our series on alternative lending. Previous installments have covered the basics of alternative lending and the ways traditional lenders are responding. This post looks at the areas where the most opportunity seems to lie for banks and credit unions who want to compete in this space.

If you were to ask Larry Summers, the former U.S. Secretary of the Treasury, where the greatest opportunities rest in alterntive lending, his answer would likely be two words long: Small business. Summers has gone so far as to predict that eventually, alternative lenders could capture 70 percent of the small business lending market.

"This is a challenging time for the American economy," Summers was quoted as saying in Inc. "The conventional financial sector has, in important respects, let all of its main constituents down over the last generation, and technology-based businesses have the opportunity to transform finance over the next generation."

So far, small business is working well for alternative lenders. It’s an area with high demand for loans, and, Business Insider reports, the institutional investors who want to put money into alternative lending find small business loans to be the most desirable.

It makes sense ─ in part because small business lending virtually dried up after the 2008 recession hit. It has not bounced back.

In a recent marketplace lending survey by Richards Kibbe & Orbe and Wharton FinTech (pdf), the authors cite "potential for continuing strong growth" in the sector. "Despite the original predominance of consumer lending sites, the responses to the survey show the potential for greater future growth in small business lending," they write.

Some alternative lenders are focusing even more tightly than just "small business." For instance:

• DriverUp is specializing in automotive loans
• SoFi is going after student loan refinancing
• RealtyMogul is an alternative lender for real estate
• Noesis focuses on loans for commercial energy equipment

(Source: Is Alternative Lending becoming a Trillion-Dollar Marketplace?, pymnts.com)

--

Compliance and Your Credit Union

• Face an daunting burden of regulatory requests?
• Struggle to manage the multiple experts inside and outside your organization who must respond to exam requests?
• Use email for regulatory communication -- possibly opening yourself to legal discovery?
• Receive the same request more than once but provide a different answer each time?

If these challenges sound familiar, Axiaware's new credit union compliance software product, Redboard, could help.