Investing in Alternative Credit

6 min readSep 12, 2023


In today’s fast-paced financial world, alternative credit financing stands out as a rapidly growing sector, with traditional lending tightening in higher rate environments. Alternative credit offers businesses a fresh lifeline. It is flexible and provides healthy diversity and liquidity to capital markets. Often, it even provides better terms than conventional lending. This article takes a closer look at why demand for non-conventional credit is rising.

Fundamentals of Investing in Alternative Credit

Alternative credit financing refers to non-traditional methods of securing capital. It’s a departure from conventional bank loans, often employed by businesses, particularly startups and small enterprises. These entities may not meet the stringent requirements set by traditional banks due to regulatory changes and enhanced capital requirements, making alternative credit financing an attractive option.

Sources of alternative credit financing are diverse, ranging from peer-to-peer lenders and crowdfunding platforms to cryptocurrency-based lending systems. The advent of digital currencies has not only revolutionized lending but also opened new avenues for financing.

The Appeal of Alternative Investments

Why are more and more borrowers gravitating towards alternative credit financing? The allure is multifaceted. For starters, the process is swift. Unlike traditional banks, which can take weeks with rigorous checks, alternative financing offers a quicker path to approval.

But it’s not just about speed. Alternative credit investments are synonymous with flexibility. While traditional banks are often bound by strict lending rules, alternative platforms are more adaptive. They see beyond a rigid structure but can contextualize it more freely. They can value the promise of a business idea, or the quality of a receivable, and include that analysis in a loan decision. In an era where innovation is king, this approach has been a game-changer.

How Technology Improves the Lending Experience

Technology is revolutionizing alternative credit financing. Platforms that are powered by advanced algorithms are bridging the gap between lenders and borrowers. The once tedious onboarding process is now swift and digital. Borrowers upload documents, fill forms, and get assessments much more quickly, and often with a few clicks.

Integrated loan management systems are another huge improvement for the space. They track loans, offer real-time analytics, and automate reminders. Both borrowers and lenders benefit from continuous monitoring. Borrowers can monitor loan status and strategize repayments, while lenders assess risks and manage portfolios more efficiently.

This efficiency gain has been further exacerbated by the emergence of AI and machine learning. These technologies enhance predictive analysis, risk assessment, and personalized loan offerings. Moreover, with 24/7 platform availability, financial needs are addressed at any time. In short, technology is making alternative credit financing efficient, transparent, and tailored. It’s a new dawn in finance and unlocks capital to businesses that were previously closed out of financial markets.

Navigating Credit Products

Technology is not just revolutionizing alternative credit in the execution process, but also in the underwriting process. Platforms such as Percent, Yield Street, Fundrise, Obligate, Clearpool, Credora, Maple Finance, and others can all broaden lenders’ horizons, showcase a spectrum of risk profiles and opportunities and trim the fat off initial due diligence.

While alternative lenders present diverse terms, technology simplifies comparisons. Rates, fees, terms, risks can all be laid out in easy-to-evaluate ways. Yet, a notable opportunity cost of veering from traditional banks has been potentially having to move away from their notoriously rigorous underwriting. However, technology is bridging that gap, enhancing credit analysis robustness in the alternatives space, but while cutting underwriting times significantly.

In a nutshell, alternative credit is more than a trend; it’s a tech-propelled evolution. It promises agility and adaptability. As the sector matures, the blend of cutting-edge tech and sharp decision-making will define its success trajectory.

The Role of On-chain Credit Markets

The next generation of platforms is on the horizon, promising even more integration of real-world assets and on-chain finance. These platforms aim to bridge the gap between traditional finance and the crypto world, making lending and borrowing even more seamless.

Blockchain technology is proving to be a boon in addressing regulatory challenges. Its inherent transparency and traceability features are simplifying compliance, making it easier for platforms to adhere to regulatory standards while still offering innovative financial solutions. It also opens the door for disintermediation, removing some of the functions that may be redundant in a world of automation (e.g., transfer agent, calculation agent, etc.).

In essence, the fusion of on-chain technology and automation is reshaping the alternative credit landscape. For investors and stakeholders, this presents a realm of opportunities. The core benefits of running alternative credit deals through on-chain technology include instant settlement, lower costs to enter the market, a reduced threshold for minimum investment, and 24–7 trading of the assets. The future of finance is not just on-chain; it’s smarter, more transparent, and provides greater depth to global capital markets.

On-chain Finance: A Paradigm Shift

On-chain finance is changing the way we think about credit. It’s shifting power from centralized institutions to individuals. In the realm of investing in alternative credit, it means more control for investors and making allocation decisions based on your own risk tolerance and investment goals.

Moreover, disintermediation through on-chain finance opens up a world of opportunities previously inaccessible or too complex for individual investors. From peer-to-peer lending platforms to cryptocurrency-backed loans, the options are diverse and growing, meaning end users can more easily diversify their portfolios and potentially increase returns.

Why On-chain Finance Matters

Fragmented traditional markets often obscure prime credit opportunities as they are hard to access, the minimum investment sizes are prohibitive, and borrowers only have a select few channels to go to for funding. This allows for inefficient pricing for borrowers and incomplete access for lenders. Credit markets moving on–chain changes that. It streamlines the discovery of credit opportunities and makes them accessible to a wider audience in a transparent way.

Every disbursement and every interest payment can be traceable and auditable. Investors can verify funds’ movements with ease, and with tools like those developed by Credora, that transparency doesn’t end off-chain. Credora uses private risk monitoring tools to validate off-chain activity of borrowers, bridging the transparency of on-chain transactions to the inevitability of off-chain activity.

On-chain finance allows for instant settlement, without a dependency on banking hours. The loans themselves, once tokenized, can be more easily traded and split up into smaller pieces — allowing investors to manage risk more effectively, even using certain positions as collateral for capital efficiency.

By eliminating the need for multiple intermediaries such as transfer agents, paying agents, calculation agents, and custodians, disintermediation creates cost savings. These savings can enable issuers to reduce the minimum investment sizes, thereby granting more investors access to unique lending opportunities.

On-chain finance offers efficiency, transparency, and more opportunities for the credit landscape.

The Road Ahead for Alternative Credit Financing

Alternative credit financing continues to grow aggressively, and its future remains promising. Macroeconomic factors have played a hand, with rising interest rates making traditional borrowing prohibitively expensive, leading many to turn to alternative credit for more competitive terms. As discussed, this shift is further propelled by technological advancements. Digital tools, AI-driven risk assessments, and blockchain transparency are streamlining and enhancing the reliability of alternative platforms.

Moreover, as businesses look beyond borders in our globalized world, there’s a surge in demand for diverse financing solutions. Alternative credit, with its adaptability, is primed to meet these international needs.

The Role of Regulatory Frameworks

As alternative credit financing continues to grow, so does the need for robust regulatory frameworks. Regulators around the world are beginning to recognize the potential of alternative credit financing. The United States recently released the JOBS Act framework to encourage crowdfunding platforms, providing an alternative credit financing route for startups and small businesses.

For those investing in alternative credit, and those borrowers leveraging it for their capital needs, these regulatory developments are crucial. They provide a level of security and confidence in the market and reduce legal and compliance burdens when deciding whether to use alternative rails for financing. Ultimately, reducing your cost of capital by 1% isn’t going to matter if it leads you to a large compliance-related penalty that could threaten the core business. As regulatory frameworks continue to evolve, they will play a key role in shaping the future of alternative credit financing.

Along with multiple other firms in the space, such as Maple Finance, Clearpool, Obligate, and others, Credora sits at the intersection of on-chain finance and alternative credit and strongly believes the two technologies have the ability to unlock each others’ potential. On-chain finance is built on an ethos of transparency, automation, liquidity, and borderless finance with increased access for the average investor. All of these traits are true of alternative credit investing, and on-chain finance can bring the required infrastructure to allow the sector to truly grow.




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