Traditional credit scoring and lending practices have long disadvantaged a significant share of the population. Thankfully, alternative lending services are helping more people access credit options in these critical times when the affordability of daily purchases is decreasing.
Alternative lending is rapidly growing in all types of economies. While developed nations experiment with additional lending sources due to a high digital adoption rate and mature competitive markets, emerging economies strive to boost financial inclusion amid limited access to traditional banking.
What Is Alternative Lending?
Alternative lending should not be confused with predatory lending practices, which often occur informally and are unethical and deceptive. Unlike unfair offerings created to lure vulnerable individuals with poor credit scores, low income, or limited financial knowledge into the debt trap, alternative lending aims to help the same categories safely, conveniently, transparently, and affordably improve their economic well-being.
Alternative lending allows individuals or businesses to get money without going through the bureaucracy of traditional banks or credit unions. It helps people who might not qualify for regular bank loans because of a low credit score, not having assets to offer as security, or needing quick access to funds.
Common Types of Alternative Lending:
- Peer-to-Peer (P2P) Lending – peer-to-peer platforms connect borrowers needing a loan with their peers who have spare money and are willing to lend it at favourable terms.
- Crowdfunding – individuals or businesses may raise a set sum for a project, startup idea, charity case, emergency, or anything else from a large group of people who chip in, often in exchange for rewards or equity.
- Online Business Loans – many fintech companies provide quick loans to small businesses with minimal paperwork.
- Invoice Financing and Merchant Cash Advances (MCA) – alternative lenders offer businesses cash advances based on outstanding invoices or projected future sales.
- Microloans – institutions give small loans to individual entrepreneurs who can’t get regular bank loans yet.
- Cryptocurrency Loans – many platforms allow risk-tolerant crypto investors not to share their income details or credit scores but to arrange the deal for their virtual assets to serve as a guarantee for a much-needed loan.
Growth of Alternative Lending 2025
There are various means for businesses and individuals to bypass traditional financing methods. They may use dedicated P2P platforms to connect directly with potential sponsors or access credit from an alternative source with non-conventional loan approval methods. Let’s explore each segment separately.
Middle-Market Loans
Morgan Stanley estimates that the private credit market, which means business lending provided by organisations other than banks and includes direct lending to middle market companies, grew significantly from about $1.3 trillion in 2020 to $1.8 trillion by early 2024. It is expected to reach $2.3 trillion by 2028.
The research sheds light on the paramount role of private credit in capital markets. More and more businesses select private lenders amidst all the variety of options when they need swift access to funds and higher liquidity. Private credit offers the crucial speed and flexibility they’re looking for. With traditional bank lending getting more rigorous, many businesses wager their success on turning to these quicker, more reliable financing options. That’s why alternative lending in the middle market remained strong last year, with a big part of it driven by the need for extra financing.
SMB Credit Growth
According to Forbes data, the global market for small-business loans was worth $2.46 trillion in 2023. However, banks and credit unions approved fewer than 25% of all those loan applications. Many SMBs simply do not pass the eligibility test for traditional loans. Many of them are founded by immigrants who do not have local citizenship or social security numbers. Numerous home-based ventures cannot provide separate business addresses. The list of hurdles on their way to a loan may go on and on.
Alternative lenders, mostly fintech platforms, are stepping in to fill this gap in recent years. These digital-first companies use big data, automation, and AI to alter limited ways in which small and medium-sized businesses access funding. They often use alternative credit data, which encompasses additional insights such as professional licenses, asset ownership, online lending, short-term lending, rental data, consented data, and more, along with conventional credit scores. Borrowers are not the only ones who benefit from this approach. Studies show that alternative lenders also enjoy increased revenue growth by at least 15% and improved customer experience.
Crowdfunding Propels Startups
Many fintech companies offer SMBs alternative lending options, such as microloans. The latter are indispensable for immature startups with limited credit history but are often absent in the credit portfolios of traditional banks and credit unions. Besides, crowdfunding platforms like Kickstarter and GoFundMe give small businesses the capacity to raise money directly from the public.
Since its inception, Kickstarter alone has facilitated over $8,5 billion in funding for creative projects, with over 40% of the hosted campaigns achieving their funding goals. As of January 2025, gaming became the top-funded category on Kickstarter, raising $2.63 billion in pledges from backers. At the same time, traditional lenders often consider gaming projects and startups high-risk due to their unpredictable revenue patterns, the industry’s highly competitive nature, and the lack of physical assets to use as collateral.
P2P Lending on the Rise
P2P lending services cater to both business and individual needs. Their popularity and volume keep growing across different countries of the world. Here are some of the recent growth numbers and forecasts provided by Statista and Research and Markets:
- The global P2P lending market size was estimated to grow from $189.56 billion in 2024 to $251.34 billion in 2025 at a compound annual growth rate (CAGR) of 32.6% and expected to reach $729.07 billion in 2029 with a CAGR of 30.5%.
- The cumulative volume of P2P lending in South Korea grew from 10.8 trillion South Korean won in 2023 to 12.8 trillion won in 2024;
- In 2017, the value of P2P business lending in the UK reached over two billion British pounds, up from 749 million GBP in 2014. Consumer P2P lending grew from £547 million to £1.4 billion in the same period.
- P2P loans are particularly popular in Asian countries. Back in 2015, China surpassed most economies in P2P lending volume. At that time, these loans totaled almost $67 billion in China, compared to $16,6B in the US and $5,4 billion in the UK. However, once regulators introduced stricter financial rules, the segment shrank. In 2019, over 7.2 million people privately lent money via 343 online P2P platforms still operating in the country.
- In 2020, the market size of P2P lending in Japan stood at 112.5 billion Japanese yen, increasing from 111.3 billion yen in 2019.
- In Europe, peer-to-peer consumer and business lending grew from $3,04B and $3,95 billion in 2017 to $3,17B and $5,59 billion in 2023.
What 2025 Has in Store for Alternative Lending
The alternative lending landscape is not uniform and smooth. It constantly changes and reshapes to meet fluctuating consumer demand and business needs. Additionally, alternative lending trends adapt to the changing regulatory requirements and overall socio-economic conditions. As for 2025, some of last year’s tendencies keep developing, while other new and distinct adjustments are visibly occurring.
Automation Speeds Up
The adoption of automation tools, specifically those driven by artificial intelligence (AI), streamlines several lending processes, including application data checks, credit score or other credibility factors assessment, and decision-making. In the UK, more than half (55%) of all AI use cases in the financial segment display some degree of automated decision-making. About a quarter (24%) of those capabilities are semi-autonomous, but only 2% are fully automated.
Modern AI systems can automatically extract and verify information from financial and other relevant documents. Therefore, there’s no need for human employees to look through dozens and hundreds of pages containing plenty of numbers that can be easily misplaced or misinterpreted by manual processing. Besides, AI automation algorithms can analyse a multitude of data points, even across non-conventional data sources, such as social media activity, purchase history, or utility payment history, and predict the applicant’s creditworthiness with high contextual precision.
Progressive lenders also leverage Automated Underwriting Systems (AUS), which automatically assess risk via predictive analytics and determine the loan terms based on predefined criteria. When AI and deep learning are integrated into rule-based engines to evaluate and predict risks in compliance with applicable regulations, they can optimise rule sets, interpret and analyse even unstructured data, automatically generate new rules based on updated patterns discovered in large datasets, and continuously improve decision-making.
In a recent survey, 69% of financial organisations admitted they were using AI for data analytics, and 57% of banking institutions and asset managers leverage the power of the innovative technology to process data. One more important area where both alternative and traditional lenders successfully leverage AI is fraud detection. Automation can scale up this crucial security activity. As of 2024, 71% of financial institutions reported utilising AI and ML for this purpose, up from 66% in 2023.
When we move from 50/50 adoption to a vast majority use for any given technology, those who lack the widespread capability risk lagging behind. Therefore, we expect to see accelerated adoption rates for AI automation among smaller alternative lenders who want to stay competitive.
BNPL is Still King in Consumer Loan Segment
In 2025, individuals need loans and flexible payment options more than ever. Buy Now, Pay Later (BNPL) lending is increasingly funding consumer purchases, shifting from big-ticket bargains to daily spending items. Since 2023, demand for BNPL solutions has been rising across all age groups in the UK as living costs continuously increase. While over 50% of younger generations prefer BNPL, it is notable that even 20% of the country’s elders over 65 resort to this type of alternative loans.
Besides, e-commerce businesses offering BNPL options see a staggering average 27% increase in sales volumes. BNPL providers like Klarna are increasingly bringing additional value to the services, partnering with global payment and tech leaders like Apple Pay, JPMorgan Payments, or Stripe to boost convenience and accessibility. Therefore, all parties of the deal are interested in perpetuating the trend. A study from Juniper Research has predicted that the number of BNPL users will surpass 900 million globally by 2027, rapidly growing from 360 million in 2022.
Alternative Lending Becomes Integral Part of Embedded Finance
With the help of bridging technology such as APIs, embedded alternative lending offers not only instant but also highly-personalised loan services directly at e-commerce platforms and dedicated apps. They often leverage customisable credit limits based on purchase history, transactional and other user data gotten from the merchant app, rather than traditional credit scores. This way, sellers may target underserved customer segments.
Embedded loans at the point of sale are becoming increasingly popular, especially in emerging markets. Therefore, revenue from embedded ‘buy now pay later’ services is forecast to account for more than 50% of the embedded finance market in 2026.
Besides, SaaS companies start using embedded finance as a way to build stronger relationships with their business customers by providing them with more comprehensive solutions and significant added value. SaaS platforms that feature embedded lending encourage long-term use by offering clients the ability to secure financing directly within the app without looking for a separate provider. As a result, companies offering integrated financial solutions retain 30% more customers on average compared to those that don’t.
Bottom Line
For years, traditional lending made it tough for many people and businesses to get loans. But thanks to alternative lending, that’s changing at the speed of light. Whether you’re a startup, a freelancer, or just someone who needs quick cash, new lending models are making financing more accessible, flexible, and offers digital-first loan experiences.
So, what’s alternative lending? It’s not anything similar to shady, high-interest payday loans. Instead, it includes reliable and regulated peer-to-peer lending, crowdfunding, fintech-powered business loans, microloans, and even crypto-backed financing. These options cut through bank red tape, offering faster approvals and fairer terms.
The market is booming worldwide. In developed economies, alternative lenders are riding the wave of digital finance, while in emerging markets, they’re bridging the financial gap for the underbanked. Small businesses reap huge benefits — big banks approve less than 25% of their loan applications. If not for alternative lenders, they wouldn’t strive.
Tech plays an enormous role, too. AI-powered lending assesses credit risk instantly, while Buy Now, Pay Later (BNPL) keeps growing as a go-to consumer financing option. Embedded lending is also on the rise, letting shoppers get loans right at checkout.
