The culture of doing business is on the rise in El Salvador. According to Statista and their surveys in 2024, 38.71% of Salvadorans are self-employed. However, the problem with beginning a business is often securing the initial capital. Traditional banks won’t provide business loans easily. The requirements are tough, but the average interest rate is 9.57%. This makes it difficult for many business people to expand their startups.
Thankfully, a new kind of actor is emerging to provide this missing link in finance—the so-called Alternative Lending Institutions (ALIs). They offer financing for businesses that traditional banks underserved. These alternative companies managed to change the financial sphere in the US. ASAP Finance is an example of an ALI that supports Americans who need loans for any emergency. What role do similar companies have in El Salvador, and how can they improve the financial sphere in the long term?
The Need for Alternative Lending in El Salvador
Conventional lenders use safe guarantees, which could be more friendly to new businesses in El Salvador and other areas. However, the lack of access to conventional funding hampers economic development and restricts the growth of small businesses. Of the various modules of the economy, microenterprises contribute approximately 42.9% towards the GDP of El Salvador. Dinero Surveys has forecasted that micro and small businesses account for approximately 49.2% of the national gross domestic product. These businesses also offer a source of income to a large part of the community, proving their worth in eradicating unemployment and poverty.
Some non-traditional working capital financing tools more liberal than traditional banks are P2P business financing, online lending with minimum requirements, and crowdfunding, as they provide a faster application process and lenient repayment terms. These platforms can source needed funding for start-ups, small businesses, and even people who can’t qualify for bank loans.
How ALIs Are Supporting Entrepreneurs in El Salvador
ALIs also understand that every business is individualistic. They aim to offer Salvadorans solutions that suit the financial needs of various industries. From a small retail store to a student who decided to open an IT startup, ALIs loan products are unique and designed to help people implement their ideas.
Alternative lending institutions, such as Optima Servicios Financieros, DiiMO, Cubo, and Sostengo, contribute to the growth of El Salvador’s economy by offering eligible businessmen and women the most appropriate, easily accessible, and flexible credit facilities. You can get loans ranging from $200 to $10,000, with 6 months to 2-year repayment terms. The companies report a 95% loan repayment rate, showing high customer trust and repayment reliability. They are fostering the next wave of business enterprises and leaders by opening paths to access capital and backing innovation.
Comparison: Financial Support for Entrepreneurs in El Salvador vs. the United States
For clarity, we’ve made a comparison of financial support for entrepreneurs in El Salvador and the United States:
El Salvador
- Limited Access to Traditional Banking: Salvadoran entrepreneurs usually have restricted access to credit, particularly traditional forms of funding depicted by bank loans. According to Work Bank Group, the country’s financial landscape is characterized by a lower banking penetration rate, with only about 35% of Salvadorans having access to formal financial services as of 2021.
- Reliance on Alternative Financing: Small loans are vital for starting and maintaining a business. Equity financing, crowdfunding, and other related sources have a great impact.
- Smaller Loan Amounts: According to the Global Economy, the average small business loan in El Salvador is about $2,500. Meanwhile, the average loan size for business emergencies in the United States is $10,000.
United States
- Diverse Funding Landscape: There is a wider range of funding options, including venture capital, angel investors, and government grants.
- Higher Financial Literacy: US entrepreneurs are more financially savvy than El Salvador entrepreneurs. This statement is based on the higher financial literacy scores and greater financial inclusion observed in the U.S.
- Established Support Systems: Organizations like the Small Business Administration provide comprehensive support, including loan programs, business counseling, and training resources.
The Role of ASAP Finance in Empowering Salvadoran Entrepreneurs
Organizations like ASAP Finance inspire Salvadoran institutions to create the same business model and help others with much-needed capital and resources to run their companies. Here’s a deeper look into how they could achieve this:
Simplified Loan Applications
Financial institutions in El Salvador could use convenient interfaces to simplify loan applications. This would help avoid many business problems, such as insufficient time or capital to attend rigorous banking formalities.
Inclusive Lending Practices
Large credit reference agencies mostly neglect small business owners. El Salvador ALIs could provide loans beyond simple credit scores. This inclusivity will help credit-constrained firms access funding to improve their services.
Accessible Financial Education
Alongside providing capital, alternative lending institutions will be dedicated to their customers’ ongoing success. It will offer valuable financial literacy resources and tools to help entrepreneurs understand and manage their financial challenges, make informed strategic decisions, and build more efficient and stable businesses.
Impact on Salvadoran Entrepreneurs
ASAP Finance thus inspires Salvadorans. Alternative lending institutions could fund business owners to develop or expand their operations, hire new staff, and enter new markets. This would create employment for Salvadorans and boost the economy.
Case Study
ASAP Finance recently funded a young technology company in Utah (USA) that specializes in creating application software for producing food crops. Funding sources like banks could not be approached for funding because the startup has not operated for a long time and has little recorded revenue. Regarding this venture, ASAP Finance saw the opportunity early enough and offered a loan to ensure they developed and launched their flagship solution.
Such funding helped the startup attract the best engineers, gather vital market information, and fine-tune its technology. Therefore, the startup successfully released the product in September 2024, got a foothold in the market, and is ready for rapid further development to generate new job vacancies and promote the growth of the Utah IT industry.
Benefits of Alternative Lending Institutions for El Salvador’s Economic Growth
Alternative lending institutions or other financial solutions could boost El Salvador’s economy in 2025. Gaining independence creates a positive ripple effect that helps society as starting and growing a business becomes easier.
Imagine more Salvadorans bringing their visions into existence—starting little stores, creating new businesses around technology, or designing and creating merchandise. This would generate income and employment and, therefore, eradicate poverty. ALIs provide equity, where those in the minority can fight that power and get the resources they want for success.
Between 2021 and February 2023, the number of fintech companies in El Salvador increased by 45.4%. This proves that the ALIs are not merely a fad but a necessity to form the expected economy of El Salvador. This way, the country can create a better and more sustainable future and an economy in which everyone could be interested in investments in innovations.
Challenges and Opportunities for ALIs in El Salvador
ALIs in El Salvador face issues such as state and non-state regulation and functioning in the market with systemic economic insecurity. This can translate to higher default rates, which can affect the sustainability of these financial institutions.
As Kathryn McCoach, a financial expert at ASAP Finance, explained, „Although opportunities have been described as limited, inspirations for the financial sphere are unlimited. That means engaging customers digitally, automating loan approvals, and making loans more efficient and accessible to borrowers is possible for ALIs in El Salvador. Taking an example from other organizations becomes an important source of funds, knowledge, and support for the fintech sector in El Salvador.”
What ALIs in El Salvador Learn from the United States
When applied, the above-discussed strategies will allow Salvadoran lenders to build an efficient and effective financial inclusion environment for people’s welfare and economic development. Here is what Salvadoran lenders can learn from the current lending scene in the United States:
- Spice things up: Replace debt with grants or the opportunity to invest in a business to receive back some percentage of income (equity).
- Teach the people: Designing effective financial strategies can allow people to make good decisions about borrowing money.
- Think outside the box: Discuss new lending products catering to certain credit demand segments and situations in El Salvador.
- Data is key: Another use of big data is to capture borrower needs and make relevant products.
- Build trust: To ensure ethical lending practices in which clients feel the bank is acting in their best interests, they must foster good relations with the borrowers.
- Embrace technology: Leverage information technology to improve effectiveness, eliminate expenditure, and extend the audience.
- Promote financial inclusion: Some recommendations that should be implemented include providing loans to all groups across the population bracket, especially single moms, students, rural residents, and people with disabilities.
Final Thoughts
Online loans change the face of undertaking business in El Salvador. As the optimum online loan provider, it allows many people to make their dreams come true through convenient and efficient loans. Organizations such as ASAP Finance are at the vanguard of this process since they provide small loans for those in need. Therefore, if you are a young man interested in entrepreneurship in El Salvador, you should be confident in the opportunities ALIs present. It can be the thing that gives your enterprise the major push it needs to go to the next level.