Almost all businesses require funding to help them grow and succeed. Traditionally, most business owners turn to banks, credit unions, or the U.S. Small Business Administration (SBA) when they need a loan to run their businesses. However, when they can’t qualify, more and more small business owners are now turning to alternative lenders.
Alternative Lending Advantages
Alternative lending is a non-conventional way to access working business capital. Alternative loan terms are usually more flexible than conventional loans. Funding — including smaller amounts — can often be accessed in only a few days. Additionally, since many types of alternative loans are available, most businesses can find one that fits their needs.
The loan application process is usually simple. Businesses only need to supply a credit score, tax documentation, and bank statements. Complicated business plans are not required. Lending options are also more accommodating, allowing businesses to leverage assets such as accounts receivable and sales from credit cards instead of borrowing on credit.
Organizations with Alternative Lending Services
Several organizations offer alternative lending. For example, direct private lenders rely on their in-house funds for loans instead of depositors and investors. On the other hand, marketplace lenders connect borrowers directly with investors. Crowd-funding platforms are another option. Especially favored by startup businesses, borrowers can use them as resources to raise a set amount of money from a group of investors.
Types of Alternative Lending Loans
There are many types of alternative lending loans available to small businesses. Here are examples that may work for your business circumstances.
• Lines of credit. Businesses can quickly access money from a line of credit and then pay interest on the borrowed amount.
• Short-term loans. Borrowers usually repay this loan in less than one year and use it for one-time expenditures.
• Installment loans. This loan is for a specific amount of money that borrowers repay at regular intervals.
• Merchant cash advances. Provides business cash in advance for expected future sales from credit cards.
• Microloans. Commonly less than $50,000, microloans are often short-term, sometimes lasting only a few months.
• Invoice factoring. Based on businesses selling their outstanding accounts receivables to a third party—called a factor—at a small discount. Most businesses can expect to get about 90% of their accounts receivable value upfront.
• Bridge loans. A short-term loan that uses assets as collateral instead of a credit score.
Alternative Lending Costs
Check with your alternative lending provider to review any fees associated costs of your alternative lending loan. Some providers charge monthly fees, organization fees, processing fees, or closing costs. To ensure you obtain the right loan for your needs, request a breakdown of all loan costs.
Allow Us to Help You Reach Your Financial Goals
If you would like to know how alternative lending can help your business grow and flourish, contact 18 Sierra Financial today.