What is Alternative Lending? – Small Business Trends

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Small businesses and individuals who don’t want to go through traditional banks take note. Alternative loans are a way to get the money you need. Alternative lenders can break through the traditional red tape.

They provide business financing that is characterized by accessibility, flexibility and speed. In addition, you can get a loan without going through traditional channels. All good reasons to continue reading. And learn more about this option that’s great for small businesses.

What is Alternative Loans?

Alternative lenders focus on business loans that typically have a higher interest rate. But there is a payoff, such as streamlined applications and more relaxed requirements. Plus faster times to fund these installment loans.

Many alternative lenders usually complete the process digitally. These online lenders use software to come up with financing options, get installment loans and other types of loans early.

The alternative business lending in 2022

This type of business financing is a real competition to traditional loans. Transactions in this type of fast financing are expected to reach $344.50 billion this year. That’s worldwide. This comes at a time when traditional bank lending is associated with higher interest rates.

Many business owners are looking for alternative lending options as opposed to that of a conventional financial institution, here’s why.

Why You Should Consider Alternative Small Business Lenders

There is more than one reason why an alternative lender is good for small businesses. Keep in mind that 29% of SMEs run out of capital and go bankrupt. In other words, cash flow can be a problem.

Following are five reasons why SMEs should consider these alternative small business loans.

The application process is fast

An alternative lender uses digital technology for the application process. You can apply for an alternative business loan and hear back within 24 hours. That is perfect for credit activities that want to switch quickly.

Traditional lending involves a longer process. Loan officers take more time to make sure your business is legit and low risk.

You are in a risky sector

Alternative lending refers to different types. There are online lenders and private lenders, as well as crowdfunding and market lending to look at. Traditional credit institutions make it more difficult for risky sectors to obtain financing. Some examples are the financial sector and construction.

There are more loan options

Alternative online lenders offer various loan options and are processed quickly. These are generally short-term loans that include the following:

A business line of credit. Grab the money when you need it. Equipment Financing for buying equipment. Eligibility is determined by the value of the purchase. Invoice financing. Alternative lenders offer loans based on unpaid bills.

There are others to choose from.

Your company has low credit

The business owner with a lower credit score can get money from an online lender. Banks generally require credit scores of 600 or higher. However, alternative lenders are more flexible.

Loose restrictions on how you use the money

Alternative business lenders let you use the money however you want. In principle, inventory and equipment financing can be the exceptions. On the other hand, a bank loan often requires a detailed plan.

Best Alternative Loan Options for Small Business Owners

Avoiding a traditional bank loan means finding alternative lenders. Find one that offers these options for your alternative loan.

1. Trade Advances

These are common, but are best suited to SMBs doing business through credit cards. Receive the advance and pay it back with a percentage of those trades and a cash advance from the merchant.

2. Invoice financing

Also known as invoice factoring. Get money based on outstanding invoices. You can get 85% of the value upfront and the rest (15%) will be paid to you when the invoices are paid, minus the fee. Invoice financing is a quick option.

3. SBA Loans

These are guaranteed by the government. They have a low interest rate, but a long term. Here’s what small business administration wants you to know. Your personal credit score will be assessed, as will your business credit score.

4. A business line of credit

These products work this way. Take the money when you need it and pay it back with interest, and then these business lines reset. Major bank loan models have these too. But they are harder to qualify. The alternative loan process has been streamlined.

5. A term loan

Often the same as a traditional version. There are fixed or variable rates and fixed fees. One difference is that there are higher interest rates and shorter maturities.

How do alternative lenders work?

These companies provide business loans. When a business does not meet a bank’s minimum annual income standards or when their business credit or personal minimum credit score does not meet.

Alternative loans have more leeway in how they put together their products. They take what the bank might see as bad credit. They are faster than banks and credit unions. But that generally means higher rates.

What are examples of alternative business loans?

Interested in this type of small business loan? Here are some examples to consider.

fintech. You may be able to get lines of credit here. But these alternative financiers operate exclusively online. You get automated accounting and online payments with Fintech. Kabbage is one of the companies called alternative lenders that can help. Peer to Peer Lending. People borrow and borrow from each other. Not For Profit Lenders. Do you have a positive reputation with your community? But only recently in business? Get lines of credit for under $50,000.A Credit Union. A good solution if your working capital is low. Installment loans have fixed interest rates.

What low-risk cash alternatives are available to businesses?

Traditional lenders usually need collateral. Some of the best low-risk alternative options that don’t require collateral include:

Term Loans.

Receive a lump sum to buy fixed assets, such as a new building.

Peer-to-peer lending

Investors come together to pool money. These loans are unsecured.

lines of credit

The money can be borrowed if a small business needs it. Remember that unsecured ones have a higher interest rate.

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