If you have a small new startup business, it can be difficult for you as a business owner to get approved for a small business loan. You might need help with moving to a new location or adding more inventory to meet the demand. Fortunately, alternative lending is available for business owners who have difficulty getting approved for a small business loan. Although it is a more expensive way to get a business loan, it is it is an easier way to get capital compared to traditional business loans.
Alternative lending is a lending practice that happens outside a traditional banking institution. Non-banks – financial institutions that do not have a full banking license – also offer different lending options to smaller businesses.
Alternative lenders have lower approval requirements than traditional loans such as less time in business and lower revenue requirements, making them favorable to many new startup businesses. They also have a fast turnaround process as well.
Below are the different types of alternative lending. They do not include bank loans or SBA loans. See which one of the options best suits your business needs.
You borrow a set amount of money for a set period of time with a term loan. This loan is great for those businesses that have big financial investments.
Lines of credit allow you to use the funds over and over as long as you pay down your balance. It can help you with temporary cash flow shortages or with payroll and bills.
If your business has accounts receivable, you can use invoice factoring to get an advance on any of your unpaid invoices and then pay them back when the money comes in.
These are easy and fast to obtain but the rates can be high. Repayments are made on a daily or weekly basis and the lender takes a portion of your sales.
The following are some of the benefits to alternative lending:
There are a couple of downsides to alternative lending that are important to note:
When applying for your loan, lenders consider a few factors to determine if they should approve your application or not. The following are the most important:
Before applying for alternative loan, make sure you have weighed all of your options carefully and see if it suits your business. You can always speak to an expert who can help you evaluate your financial situation and help guide you in the right direction.