3 Common Misconceptions About Alternative Financing

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Wednesday, November 8th, 2017

When it comes to obtaining a loan, misconceptions can be costly and risky, because they prevent you from making an informed decision that’s right for your business. Considering this, here are 3 misconceptions about alternative financing that you need and deserve to know:

Misconception #1: Alternative Financing is Riskier than Conventional Bank Financing

This isn’t just a misconception, it’s an outright myth. The fact is that alternative financing may be — and often is — less risky than conventional bank financing, because you can likely obtain an unsecured loan. As such, you don’t have to pledge business and/or personal assets that would cover lender losses in the event of a default.

Keep in mind that all bank loans are secured, which means that if you don’t want to pledge collateral, or if you don’t have enough collateral, then your application won’t even be approved in the first place.

Misconception #2: Alternative Financing Costs Much More than Conventional Bank Financing

Banks love this misconception, which is why they keep perpetuating it by pointing to numbers like the loan APR. However, what you need to focus on is the total cost of borrowing which includes fees and upfront costs, including collateral valuation (which of course you’re responsible for covering — not the bank!).

When you do the math and compare apples to apples, you’ll likely find that the total cost of borrowing via alternative financing isn’t significantly more than conventional bank financing, yet alternative financing is much easier and faster to get. And in some cases, it may even cost less in the big picture.

Misconception #3: Alternative Financing is Only for Borrowers with Bad Credit

It’s true that unlike banks, alternative financing firms are open to supporting business owners with bad or impaired credit. For example, while big banks approve about 15-20 percent of loan applications, here at National Business Capital our approval rate is around 90 percent.

However, it’s NOT true that all borrowers who obtain alternative financing have bad credit, and therefore wouldn’t qualify for a conventional bank loan. There are many reasons why borrowers with good credit opt for alternative financing — most notably because going from application to funding takes a matter of days with alternative lenders vs. months with banks.

The Bottom Line

As noted above, this information isn’t meant to convince you to choose alternative financing instead of conventional bank financing. Rather, it is to empower you with verifiable, objective facts that will help you make a smart and safe decision that’s best for your business.

Learn More

If you’re ready to learn more about why banks decline loan applications and what your alternative financing options are, download our free eBook “How to Get Business Funding When Banks Say ‘No’” today. Not only will this eBook help improve your bank application, but it will also teach you more critical differences between banks and alternative financing options:

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