In today’s world, where technology is transforming everything rapidly and on a large scale, you are also reconsidering financing in this fast-paced economy. Traditional bank loans are no longer the only way to obtain funds. Crowdfunding platforms and digital lending options for equity financing and fintech-driven solutions have offered borrowers more flexible, faster, technology-based and hassle-free financing options. Alternative lending in the US has seen a notable increase in options loan business report by 2024. This market is projected to reach $378.61 billion in 2028, from $255.39 billion in 2023.
Looking at the growing demand for credit and the change in investor behavior, alternative financing is no longer just a trend. The future of capital accumulation in the United States is changing.
What is non-traditional financing?
Non-traditional financing means raising funds by methods other than conventional bank loans or lines of credit. It offers options like peer-to-peer lending, equity crowdfunding, digital lending apps, and many other alternative investment options. Non-traditional financing has made it easier to acquire investments for individuals, startups, and small or medium-sized businesses, freeing them from long processes and high interest rates with strict credit requirements.
What is crowdfunding and list of crowdfunding platforms?
Crowdfunding is a type of financing alternative that allows people or companies to raise funds in small contributions from the masses. People generally access crowdfunding primarily through the Internet to support their cause or operation. In 1987, an 18-year-old student at the University of Illinois He financed his entire university education through crowdfunding, asking 2.8 million people each for a cent.
There are several types of crowdfunding:
1. Rewards based: In rewards-based crowdfunding, contributors can enjoy benefits such as early access to products or some exclusive experience, but without financial return.
2. Based on donations: Money is donated by people, often for charity or humanitarian causes, with no expectation of return, but simply with the pure intention of helping someone.
3. Stock Crowdfunding: It is a give-and-take financing method in which the investor owns a mutually decided amount of ownership or equity in the company.
4. Debt-based (P2P lending): It is a direct loan or loan of money between people or companies through an online platform.
Crowdfunding is regulated by the SEC (Securities and Exchange Commission) under the Jumpstart Our Business Startups (JOBS) Act of 2012.
Key crowdfunding platforms in the US
- Kick-starter
- Indiegogo
- GoFundMe
- Seed and spark
- Backup kit
- LaunchGood
- Found game
All about equity financing
With equity financing, funds can be raised by selling shares of ownership in the company. Generally, SMEs or startups ask investors to fund them and in return offer them a share of ownership instead of repaying the borrowed money. Unlike debt-based financing, the borrower is not obligated to pay principal or interest, but equity investors gain ownership and expect a return through growth and/or exit events.
Stock crowdfunding in the US market has a significant participation, driven by favorable regulations and a larger investor base, increasing participation in startups and SMEs by contributing approximately 40% of the global market. The equity crowdfunding market, valued at $2,651.21 million in 2024, is expected to grow to $2,712.18 million in 2025.
Fintech financing applications and digital loans
Fintech financing is an ecosystem that combines all types of financing solutions, associating technology with finance and seeking financial platforms driven by technology. It covers all types of financial products such as loans, borrowings, investments, payments, BNPL, crowdfunding and neobanking.
Digital lending apps are one of the categories of fintech financing and focus solely on loans. Digital lending apps are powered by fintech technology and offer online loans for various purposes, including personal, business, residential, student, or payday loans.
The Federal Reserve Bank Data from the New York/Equifax Consumer Credit Panel (CCP) revealed that 14% of personal loans valued at around $50 billion comprise loans issued by fintech.
| Examples of fintech platforms | Examples of digital loan applications |
| SoFi | blue vine |
| Striped capital | CAN Capital |
| Affirm/pay later | Upstart |
| Biz2Credit | Loan club |
Financing options for SMEs: business beyond the basics
While traditional bank loans maintain their weight, small and medium-sized enterprises (SMEs) are exploring other avenues to accumulate capital. These include ways such as fintech lenders, SBA programs, and specialized credit-based products to maintain stable cash flow and address growth needs in a faster, more flexible manner.
There is a significant increase in 7% backed by SBA funding valued at $56 billion in fiscal year 2024. The Small Business Administration stated it supported $56 billion to fund small businesses and disaster-affected areas.
The following are the options for financing SMEs:
- Digital lending platforms and fintech lenders
- SBA Backed Financing Option
- Alternative Lenders and Private Lines of Credit
- Integrated and income-based financing
Risk and regulatory factors in non-traditional financing
Non-traditional financing is paving the way to a fast, accessible economy and financial solutions, but the path is a bumpy one with its own unique challenges and risks. The growing non-traditional financing in the US has multiple regulations and challenges to operate smoothly and safely.
1. CFPB Regulations
The Consumer Financial Protection Bureau mandates digital lenders to collect and report data from SME applicants to ensure a fair and transparent lending process.
2. License loading and compliance
American licensing systems have made it complex and expensive to seamlessly manage non-traditional financing. It is reported that 93% of fintechs struggle to meet compliance and 60% incur more than $250,000 in annual fines due to different rules.
3. Risks based on AI and algorithms
As alternative finance is a combination of finance and technology, it carries a high probability of biased decision-making and lack of transparency. Secretary of the Treasury Janet Yellen has advised people to be aware of the notable risks of artificial intelligence in financial services.
4. Cyber threats and data breaches
As fintechs increasingly adapt to cloud services and embrace technical modernization with cutting-edge machine learning and artificial intelligence solutions, they are also becoming a major target for cyber attackers. There was 4,29,874 cybersecurity incidents in financial institutions in 2023.
5. Systemic risk of non-bank loans
There are concerns about financial stability and market transparency, as NBFIs reached $1.2 trillion of banks’ credit exposure.
Emerging trends in US non-traditional financing
There is something new emerging across the board due to AI-driven hyper-personalization. An upcoming non-traditional financial trend called “integrated finance” is becoming popular.
Integrated financing allows the coordination of financial services such as payments, loans, insurance or investments directly on non-financial platforms. The user does not have to visit a traditional bank or a separate fintech application for each service. Instead, these services are integrated into everyday applications and platforms. Example: Uber offers instant payments to drivers and microloans through its applications.
Blockchain-based loans and tokenized assets are also gaining popularity in the market. Figure Technologies’ quick equity home loans are the best example.
Final words
Altogether, non-traditional financing is gaining ground and has become inevitable, allowing easy and quick access to money for individuals and businesses, so that money never becomes an obstacle to their growth and strengthening the economy. From crowdfunding to digital lending apps, integrated finance and blockchain lending, these alternative financing options are closing the gap left by traditional financing systems. However, this financing is overturned, with its own risks and limitations, and warns borrowers and investors to be alert and careful before getting involved in it. Without a doubt, the evolving future of finance is opening new doors for startups, SMEs, and consumers across the United States.
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