By now, it’s out there. Alternative financing is a quick, easy and painless path to financing for business owners in need of capital.
But with other more traditional options like bank loans out there, it’s impossible not to ask the question: is alternative financing legit?
The answer: a resounding yes! Businesses across the world (including Canada, Mexico, Europe and more) have utilized alternative financing to grow, without waiting around for banks to sign the dotted line.
Learn everything you need to know about how alternative financing is a viable option for growing your business below!
Alternative finance is a new trend in which private lenders provide business owners the fast capital they’ve (previously) only dreamed of. With a few rare exceptions, banks play no part in the process whatsoever!
The private lenders that you’ll deal with in the alternative financing world are non-institutional. This means that they are not nearly as accountable for the ROI of their loans as institutional investors like banks are. For this reason, alternative lenders have a far less rigid internal structure.
Unlike banks, which have several crucial checkpoints on the path from application to funding, alternative lenders can choose to fund a deal at any time!
Alternative financing isn’t quite new, either— it dates all the way back to 2006— but it became popular in 2008. During the infamous recession, it was harder than ever to be approved for a bank loan. Through other means, business owners were able to obtain the capital they needed to grow!
Many people believe that alternative financing is just for businesses with bad credit that can’t find a loan elsewhere. Now, that is true: credit-challenged businesses can find a viable option on the alternative lending market.
But in reality, the alternative lending market is a great option for businesses with any credit score!
Banks traditionally place a lot of emphasis on a business’s credit score when deciding whether or not to issue a loan. If the credit score wasn’t up to par, then your business was out of luck. Rather than funding based only on credit scores, alternative lenders can help businesses qualify based on sales!
This redefined loan criteria can make a huge difference for businesses in need of a cash injection! For businesses with poor personal or business credit history, this is the perfect option.
However, this trailblazing financing option can also be incredibly helpful for business owners with high credit scores!
Beyond an overall easier and more user-friendly process, alternative finance can be helpful for businesses that:
Which takes us to our next point.
There’s an old saying: banks will only give you an umbrella when the sun is shining.
It’s true: banks are cautious about the risks involved in each deal, and won’t eagerly accept every one. If you apply for a $100K bank loan, you might be lucky to qualify for $50K through a bank.
The good news: alternative lenders are far more eager to finance your business than banks!
Because alternative lenders are not beholden to a rigid structure, there’s a bit more wiggle room to work with. When you apply for a $100K loan, alternative lenders are more likely to grant your request. If you meet the criteria, they may help you to qualify for an even higher funding amount!
In fact, terms, rates, and everything else about the loan is open to discussion based on your needs! It’s a bit more difficult to manipulate or meet the cookie-cutter criteria that banks carry, and any amount adjustments may take weeks to process.
Banks are notorious for taking weeks (and sometimes months) to review applications and ultimately issue funding. In fact, this elongated wait period is one of the primary reasons business owners steer away from financing in the first place.
Alternative lenders are rewriting the book by providing funding fast (before you can blink!), with a more customer-friendly approach.
With alternative lending, you won’t experience the same wait period that you would with a bank. Once you initiate the conversation and begin delving into details, things can move quite quickly!
As soon as you qualify for a business loan, the lender can send over the offer, and get your loan approved! In the early stages, most lenders will verify that you qualify with a soft credit check, rather than a hard pull.
With fewer approvals required, you could contact a lender in the morning, and receive funding by the end of the day!
In our fast-moving world where new opportunities need immediate attention, fast funding can make all of the difference!
Alternative lenders recognize that every business faces a unique set of challenges, with different financial histories. Nothing about your deal will be set in stone— alternative lenders are open to discussing the details of every loan to best fit you!
When banks deem you unworthy of financing, you’ll receive a rejection letter. If alternative lenders are not willing to fund you for the requested amount, they’ll work with you to find a deal that fits your business. Based on your needs, they can adjust the rates, terms, amounts, and more!
Nobody likes paperwork.
Bank applications often require endless paperwork, and gathering it could consume days of your time. As a business owner, you have better things you could be doing, like growing your business!
Alternative lenders are more understanding of the strict schedule restrictions that most business owners face. With other priorities on your hands, like growing your business, hiring employees, and more, finding financing should be as easy as possible.
In light of this, alternative lenders require only a few months of bank statements to verify your financials. With these bank statements, which provide some clarity about your financials, you can demonstrate that you’re in good enough standing to qualify!
Contrary to popular belief, alternative lenders aren’t just a pit stop on the road to bettering your business.
As your business grows, you may need capital at various stages later on. For example, if you opened a new location with the first round of funding, then a second round of funding might help you to refinish your first. Or, it could help you cover payroll for a new team of employees in anticipation of your seasonal rush.
Once you’ve repaid your first loan in full, you can return for even more funding. Because you’ve already developed a relationship with the lender, receiving funding will be simpler than ever.
Based on improved financials, you may even qualify for lower rates!
The way that your alternative loan is structured will depend entirely on your business and preferences.
Typically, secured loans are an easier sell for lenders, as they are not taking on as much risk— in the event that the business owner defaults, the loan is backed by collateral, like real estate. Banks often only issue secured loans.
However, alternative lenders take a step forward by providing both unsecured and secured loans.
Unsecured loans are structured to help business owners without any collateral receive financing at fair rates in a short period of time. And, it may also be the right choice for business owners who have collateral, but do not want to risk putting it up.
Alternative lenders can issue secured loans as well, which means business owners can qualify for better rates while receiving the same fast funding process!
Alternative finance is far from limited to simply small business loans. Depending on what you’re looking to accomplish, you may prefer one of several different types of financing!
Backed by the government, SBA loans are one of the most desirable loan options for small businesses. Lenders are willing to offer better rates, as the capital will be repaid regardless of the business owners’ financials.
However, because SBA loans are guaranteed by the government, applications can take a while to fulfill. That’s where bridge loans come in.
Designed to help you make it through the stretch of the road between applying for and receiving an SBA loan, bridge loans are short-term loans that give you immediate capital!
National’s unique Hybridge™ SBA Loan program is structured to expedite the process! After applying, one of our Business Financing Advisors can help you qualify in minutes. You’ll receive financing for the short term, and an SBA loan later on in the process.
Periods of growth are always uncertain. As you go, you may find that your business needs more money to accomplish a specific goal.
Business lines of credit allow you to draw from the full balance you are approved for as you need it. Once you recognize a new need, you can withdraw even more. You’ll only pay interest on the amount that you withdraw, not the amount you initially qualify for.
The best part: you can draw again once you repay the initial loan!
When old equipment just isn’t cutting it and you don’t have the working capital to purchase new equipment, equipment financing is the way to go.
In minutes, you can qualify for equipment financing. The equipment itself acts as the collateral, meaning the lender takes the equipment in the event you don’t fully repay the loan.
It’s the easiest and fastest way to take your value up a notch!
Rest assured, alternative financing is legit. But like any other industry, there are a few sharks out there looking to capitalize on unsuspecting business owners. If you encounter any loan companies that fit the following criteria, be sure to not proceed with the loan if the lender requires:
As a business owner, you should always try to be inquisitive, and learn everything you need to know beforehand.
At National, we’ve streamlined the funding process to be as quick, seamless and simple as possible for you. Once you apply, we’ll compare potential offers from over 75 lenders, finding you the best deal. Throughout the process, you’ll work closely with one of our Business Financing Advisors.
We make it a priority to keep you as updated as possible throughout every stage!
Call (888) 488-GROW or fill out the form to apply today!
National Business Capital is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.
Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.
We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!
Matt Carrigan is the Content Writer at National Business Capital & Services. He loves spending every day creating content to educate business owners across every industry about business growth strategies, and how they can access the funding they need!