Alternative Financing: The Good Stuff
With traditional bank lenders rarely approving loans less than $200,000, where does that leave established or up-and-coming small business owners who don’t need large amounts of capital? Many are turning to alternative financing options in hopes of gaining the capital they need to start or improve their companies.
Unfortunately, it may be that not enough small business owners are relying on alternative lenders yet. Some borrowers simply don’t know there are options available outside of bank loans but others rely on them because that’s just the ways it has always been done and they are fearful of trusting new lending methods. However, there are quite a few great reasons to try alternative options.
The Process Is Fast
From the time that you apply to paying back your loan, alternative financing methods are usually much quicker than traditional lending. There is less paperwork and no need to come up with collateral in most cases and non-traditional loans can typically be approved within a few days whereas bank loans can take a few weeks or even longer for approval. Even the process of paying back your loan is quicker if you use an alternative method. Bank lenders expect you to pay your loan off over a period of 10 or 20 years and will charge you a fee to pay it back early but non-traditional lenders are more willing to work with your needs and typically have you pay the loan back in just a few years.
The Interest Rates Differ
Some business owners don’t consider alternative options because they believe the interest rates will be much higher. In reality, the interest rates are only slightly higher than that of traditional banks. Additionally, the rise in interest rate often evens out because business owners are borrowing much less from a non-traditional lender than they are from a bank lender. Many business owners who go this route find it preferable because there are clearer terms, specific monthly fees and a more reasonable timetable for paying back the loan, meaning they pay less interest overall.
The Qualifications Are Easier to Meet
Traditional lenders only approve about half of loan applications, which makes them a less-than-optimal choice for business owners seeking working capital. Alternative financing lenders typically approve about 64 percent of their applications. Most alternative lenders do not have the rigid requirements that banks do. They often work with poor credit, a lack of collateral and other issues that banks find unattractive.
As with any lender, seeking alternative financing does require some work. You should have a solid business plan or proof of current business profits. Always ensure you work with a professional, licensed lender.