You may have read about banks offering small business funding, but the reality is different. Almost 99% of US enterprises fall in the category of small businesses and getting loans is difficult.
As businesses struggle to get loans approved for expansion purposes, alternative funding is fast emerging as a viable option. This refers to funds which traditional lenders like banks do not provide. You may have read about banks offering small business funding, but the reality is different. Almost 99% of US enterprises fall in the category of small businesses and getting loans is difficult. In such a situation, alternative business funding is more appealing for entrepreneurs.
Importance of alternative lending today:
- Banks may be unwilling to approve loan applications for small businesses when they do not have a good credit score, high credibility, substantial yearly revenues, or enough collateral. Under these circumstances, approaching alternative lending sources may be the best solution.
- Small businesses often need loans in amounts like $5000, $40,000, or $75000. But traditional banks may not be willing to finance for such small amounts. No surprises then why the alternative business funding industry has experienced such a boom in recent years.
- One of the main reasons why alternative lenders have become so popular so quickly has been their skills at data mining, analytics, and using Big Data to their advantage. Lending decisions are taken quickly and you can get your loans within a day. Traditional banks can never guarantee you this.
- When you apply for alternative financing, paperwork is minimal. Unlike bank loan applications where you must prepare lots of documents and paperwork, this is superfast. All you need is some recent bank documents and an application. Lenders can underwrite approvals using only this information and get your loans approved in a day’s time.
While alternative financing is quick and hassle-free compared to traditional bank financing, costs are higher. You are expected to pay a price for all the advantages you enjoy. Since the lender takes a lot of risks when lending you money, costs of capital will be higher. So, you should be prepared to pay rates ranging from 15%-45% that are payable over 3 months-18 months in exchange for business capital loans.
Type of alternative financing solutions that you can consider:
- Community Development Financial Institutions/CFDIs focus on under-served businesses. They are usually non-profit in nature and lend to enterprises abandoned by banks. They offer higher flexibility and are perfect for entrepreneurs not having good credit scores or enough collateral which banks demand. The only downside is that the loan is likely to be lesser than what banks offer.
- Peer-to-peer lending: These online digital lenders do not have physical outlets. They use the Internet to enable you to apply for business loans which are quickly approved. However, you must have a proper credit score to get the loans, interests for which may be steep.
- Crowdfunding has been extensively used by both established and new businesses. Platforms like Kickstarter encourage people to contribute funds for financing projects they like, such as a new tech product or a movie.
- Working capital loans: These are funds for running day-to-day operations. For instance, you may need money for inventory expansion just before a busy sales period.
Whatever the financial requirement for your business, you can reach out to the Alternative Funding Group for assistance. They help you select the best funding option based on your requirements. They also ensure that loan application involves minimal paperwork and the process is completely hassle-free.