To begin a discussion of business financing versus traditional bank loans, let’s define the two terms.

Financing a business is the process of bringing money into a company. Usually, this means taking on debt to secure this financing and taking advantage of credit arrangements.

Read on to learn the major differences between alternative business financing and traditional bank financing.

Advantages of Business Financing vs Bank Loans

Business debt is offered by three major players: Banks, credit unions, and non-bank lenders. Banks and credit unions go hand in hand, while non-bank lenders fill the places they fall short.

Let’s explore the advantages of both types:

Type of Lender Advantages
Banks and Credit Unions
  • Low interest rates
  • Extended terms
  • Flexible use of funds
  • Incentives if it’s the bank you do business with regularly
Non-Bank Lenders
  • Less restrictive qualifications
  • Faster funding times
  • Fewer required documents
  • Variety of financing structures to choose from

Business Financing vs. Bank Loans: Major Differences

Bank loans are one specific way for business owners to access additional capital. While the term business financing can mean the same thing as obtaining a bank loan, generally, it implies seeking money from a non-traditional source, such as an alternative financing company.

Criteria Bank Lenders Non-Bank Lenders
Accessibility Banks carry restrictive eligibility requirements. You’ll need strong revenue, a high credit score, and a lengthy time in business to reach an approval. Non-bank lenders generally come with less restrictive qualifications. Credit scores and time in business don’t weigh as heavily during the approval process.
Offered Products Standard loan options, including term loans and lines of credit. Alternative loan options, such as revenue-based financing, accounts receivable financing, and many more.
Use of Funds Some banks and credit unions require you to use your funding in a specific way. Almost always unrestricted use of funds.
Processing Speed 30 to 90+ days response time Approvals can happen instantly, with funding on the same day (under $250K)
Cost of Capital Lower interest rates Higher interest rates
Restricted Industries Only works with well-established industries Can fund businesses in all industries

Time & Approval Factors – Bank vs. Non-Bank Lenders

A key factor when seeking money from a traditional bank or financier is time. Even with perfect credit and if approved, the time frame from application to when the money is made available to borrowers can take several months.

Fortunately, this is not the case with alternative financing organizations. In this financing sector, the process is greatly simplified, and there is a much shorter time frame for when funds are made available to borrowers.

  • Banks and Credit Unions: 30 to 90+ days
  • Non-Bank Lenders: Instant approvals and same-day funding

Alternative financing underwriting criteria are also more reasonable than banks’ loan decision criteria. Many don’t require collateral, which allows them to process applications faster.

Qualification Process: Business Financing vs. Bank Loans

One of the main differences between bank and non-bank lenders is how they determine borrower eligibility. Generally, banks and credit unions have much more robust qualifications compared to non-bank lenders.

Let’s take a look at the basic qualifications for each type of lender.

Type of Lender Qualifications
Banks and Credit Unions
  • 2+ years in business
  • $500,000+ in annual revenue
  • 700+ FICO
Non-Bank Lenders
  • 6+ months in business
  • $500,000 in annual revenue
  • No minimum FICO

Banks don’t like to take risks. They prefer to work with well-established companies in industries they’re familiar with, while non-bank lenders are a bit more risk-tolerant. Credit scores and time in business play less of a role during the qualification process of non-bank lenders, which allows more businesses to access growth capital.

How to Apply for Business Financing or Bank Loans

Applying with a bank or credit union is nearly identical to applying with a non-bank lender, except non-bank lenders respond quicker to incoming applicants.

Here’s what to expect from the process:

  • Find a lender that fits your business and goals
  • Fill out an application (usually online)
  • Wait for a decision
  • Review the offered terms
  • Negotiate the terms (if needed)
  • Finalize the contract and receive your funds

If you’re applying with non-bank lenders, it’s a good idea to find 5-10 organizations you could work with to give yourself options. Those who don’t have the time to fill out multiple applications should consider working with a marketplace like National Business Capital to quickly and easily compare the most competitive loan and financing options they qualify for.

More Information On Alternative Financing

National Business Capital is a leading specialty finance group that assists business owners in accessing the capital their company requires.

Our Business Finance Advisors will work with any size business in any industry. For more information regarding our services, please call us at (877) 482-3008.

Or, apply for alternative business financing today by filling out our digital application, and get the business loan or credit line you need in as little as 24 hours. Apply now!


Joe Blog Bio
About the Author

Joseph Camberato

Joe Camberato is the CEO and Founder of National Business Capital. Beginning in 2007 out of a spare bedroom, Joe and his team have financed $2+ billion through more than 27,000 transactions for businesses nationwide. He’s made it his calling to deliver the educational and financial resources businesses need to thrive.

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