The landscape of small business funding continues to change, and alternative lenders are able to offer things that big banks just can’t compete with. With constant changes and innovations in financing, it can be tough for business owners to keep up.
Traditional financing is always an option, but in reality, entrepreneurs and businesses of all sizes are turning to alternative lending instead, and it may be time for you and your business to do the same.
What is Alternative Lending?
When you think about funding, you may automatically assume that the best place to get it is the bank. However, walking into the bank, filling out an application, and answering a few questions isn’t all you’ll have to do to qualify, and it’s not easy.
New businesses and their owners don’t always look good on paper, and with little to no experience, it’s hard to find someone to take you seriously, especially if that someone is at a traditional bank.
Most of the time, you have to be in business for more than two years, have a credit score above 640, and need more than $250,000 to even get the time of day. After these three criteria disqualify most of the small business population, other still have to jump through a rigorous set of hoops, resulting in the decline of around eighty percent of small business applications.
Enter: alternative lending. Alternative lenders fill this void by making it easier for business owners to apply and get accepted. Alternative lenders don’t follow the same rules as traditional banks when handing out cash.
They don’t have regulatory bodies with stringent sets of rules and don’t have to play by anyone else’s guidelines. They can choose who they want to lend money to, and how much they want to give based on merit instead of checking off all of the boxes.
Four Major Benefits
There are some big benefits to alternative lending that the big banks can’t offer. Let’s take a look at some of the things that may appeal to you and your business.
While you still need to prove your worth, it’s much easier with an alternative lender. You need to be responsible enough to pay the loan, but the guidelines are fairer and more balanced. An alternative lender uses non-traditional ways to determine your creditworthiness.
These methods paint a more accurate picture of your financial footprint than merely looking at your credit history on paper. This enables them to make fairer decisions regarding who receives money, regardless of your past.
Anything less than $250,000 isn’t worth a traditional bank’s time. At least they don’t think so. This puts you out of luck if you want small amounts of cash at different times instead of a lump sum up front.
If you’re in a pinch and only need a small amount of capital to get you through short-term cash flow issues, you need alternative lending. You have options like business lines of credit, merchant cash advances, and other short-term loans.
You make payments on the amount you borrow instead of the amount you’re approved for, you can take a little bit out at a time instead of as a lump sum, and in some cases, you don’t have to pay it back until you get paid by your customers.
These options are ideal for businesses which incur unexpected expenses on short notice. Traditional banks make it hard to qualify and take even longer to approve you and give you your money. Alternative lending to the rescue!
Because traditional banks are run by bureaucracy, there’s not a lot of flexibility when it comes to interest rates. The market rate is based on your credit score, and there’s no wiggle room at all. Alternative lending is competitive, which continues to drive these rates down, despite your credit history, making them a fantastic and affordable option for a wide range of businesses.
Alternative lenders have a more well-rounded pool of borrowers, allowing them to offer low interest rates and select a wide variety of small businesses to round out their portfolio. The manage their risk by gathering comprehensive information on each borrower beyond a credit score to determine creditworthiness and the likelihood of repayment.
Banks are big ships, and it’s hard to turn them quickly. Approvals take a notoriously long time because your application needs to be reviewed by many different people along the way. This drags the process out for weeks, and sometimes months.
Alternative lenders are agile and quick to make decisions. Your application could be approved in hours with money in your pocket the same day. This is ideal when you need financing fast to cover an unexpected shortage, or to seize a limited time opportunity to grow your business.
Types of Alternative Funding
Alternative lenders like Quick Loans Direct fast business loans will get you approved quickly, often with money in the same day, with many different loan options from which to choose. Other types of alternative lenders like crowdfunding and peer-to-peer lending also provide extensive opportunities for networking and finding the funding you need in non-traditional ways.
Alternative lending has grown in light of the unfavorable terms offered by traditional banks, just be sure to look into every alternative lending option to choose the one that’s best for you.