As a small company owner, it may seem difficult to receive financing to help your business grow or maybe even to survive. Have you been declined by your bank for a business loan? The solution to this more times than not is “YES.”
As of July 2023, big banks approved small company loans only 27.7% of times.
So now what are your options? Friends and family can only go so far.
You could try your luck securing other kinds of financing, for example:
A Business Grant – This really is money given to a company through the government, a company, or perhaps a person for any specific business purpose. The money given must stick to specific guidelines specified by the grant application.
An Angel Investor – This is when a high worth individual provides financing backing in exchange for a percentage of the company. Think of the television show Shark Tank.
Crowdfunding – You can raise money by asking multiple individuals to invest in your company or project to acquire an incentive or number of your profit.
However, while these options sound great, they're also difficult and time intensive to get.
Your smartest choice may be to consider funding from an alternative lender. Fortunately, there are many alternatives and lots of private lenders prepared to go ahead and take risks and supply capital for businesses in need.
What is Alternative Lending?
Alternative lending refers to lenders other then a traditional bank. Typically, these kinds of lenders operate online.
Why Alternative Lending?
Alternative lenders can stomach the risk related to businesses that are relatively new, are seasonal, have poor credit, and have no collateral. Additionally they play a role when any businesses owner needs fast capital and don't want to wait for their bank to finance them.
Banks may take between 60 and 3 months to help you get approved. Alternative lenders can underwrite and fund the loan within 72 hours, with respect to the funding option.
Alternative Lending Requirements
The process for a business proprietor to get alternative financing is comparatively simple.
Rather than being according to your individual credit score, lenders look more toward the overall business performance. They look at monthly revenues, cash flows, bank balances, negative days, beginning and ending balances.
Your personal credit score is taken into consideration but is primarily used like a gauge in determining a loan amount, rate, and term. Banks will use your credit score to approve or decline.
To underwrite a company loan needs a single page application, Three to six months of your most recent business bank statements, and some processing statements if your business takes credit cards as payment.
That’s all that is needed to get you a lending decision. And you need to know within 24 hours regarding a funding approval.
Funding Options and Repayment Terms
The kinds of funding options can vary between alternative lenders. Here are the more prevalent types:
Working Capital Advance
A Working Capital Advance is ideal for an entrepreneur who has a bad credit score or has been around business under 24 months, and has a powerful, stable monthly revenue.
The repayments are paid daily Monday through Friday directly from your ACH debit via your company banking account. With a, this might seem a little aggressive. However, these loans are thought higher risk due to your personal credit score and time in business.
Business Line of Credit
A Business Line of Credit is more of a traditional loan, where you have simple rate of interest and pay monthly. This type of loan also affords you some flexibility for the reason that you can remove as much as you need (as much as the approval amount) and only pay interest on the withdrawn amount.
Short Term Business Loan
A Short Term Business Loan is also structured like a traditional loan. You pays back the loan amount along with an APR. This is going to be paid monthly up to and including 5-year term. To be eligible for a this loan you will need a stronger credit score (but nonetheless merely a 640) and you'll have to be in business a minimum of 2 years.
This loan, might take longer to finance. Up to two to 4 weeks in most cases.
SBA Loan
An SBA Loan may be the “cream of the crop” with regards to alternative lending.
Why?
Because this loan is government-backed and partially guaranteed through the Small Business Administration. As such, qualifying is a little more difficult compared to other funding options and funding will take longer, up to Four weeks.
Equipment Financing
If you need to buy a device for your company, Equipment Financing might be your best option.
You may be able to finance as much as 100% of the equipment cost. Since the equipment will be used as collateral, the terms could be more favorable than a number of your other loan options.
Bank Said No-You Have Options
Don't get discouraged if you're rejected by your bank for any business loan. You still have plenty of options, you need to simply do your research and understand that the terms you qualify for might not be as favorable like a bank.
A bank declined you for any specific reason, you may not agree but they're the facts. This is the reason why alternative lenders exist, so that you have other available choices.
But since an alternate lender is giving your business money without meeting you, requiring your own business plan, needing perfect credit, taking equity (except for Equipment Financing), or suggesting ways to use the loan, the terms may be a little higher. This is not always the situation, but often it is.