2021 is the year to grow and expand your business. Most businesses are still trying to get back on track from financial hardships faced due to COVID-19. While the pandemic still exists, vaccinations alongside social distancing are helping get business owners and employees back to work and operating normally. Whether a business faced financial hardships due to the global pandemic or it is just the right time to expand the big ingredient that most companies are missing in the working capital. Luckily, 2021 has brought many top business lending options that can help business owner kick gear into a good business year.
Many lenders understand that the global pandemic left many with financial hardships unable to pay bills on time which impacted directly their credit score. Due to the fact that a business owner’s credit history is a determining factor to approve a loan, many business owners cannot apply for a traditional loan. However, there are many other financing options that exist whether short-term loans or long-term that can help. Alternative financing for small business loans can help a business grow out of these financial hardships and expand.
What Is Alternative Financing?
Alternative financing refers to any type of small business loan, advance or other types of commercial financing available through alternative lenders and financing companies for businesses that do not meet the requirements of a traditional business loan through banking institutions. Alternative financing companies can provide more flexible business financing options to help small businesses access the working capital they need. Keep in mind, alternative financing companies can offer both unsecured business loans as well as secured business loans, depending on the business needs and the business’s qualifications.
Let’s dig a little deeper.
What is considered an Alternative Lender?
Just as the name sounds, an alternative lender or financing provider is is an alternative option for businesses when the banks do not approve them for a traditional loan. These financing companies have a variety of financing options available depending on the business’s qualifications, business needs, and term options needed. Unlike traditional banks, these financing companies are private and have their own processes for determining eligibility and approving loans or advances.
It is important to note that because they are private financers, the terms may differ from the most common ones seen at a traditional bank when applying for a small business loan. Now because they are alternative does that mean they do not offer the same loans bank do? False, these private financing companies also offer small business loans, the biggest difference is that the requirements, and terms may be slightly different than a bank. For some business owners, these financers are not alternative and they would actually prefer to apply with a private financier first than applying with their own bank because they consider the process to be much simpler. At Rapid Finance for example, applications can be done 100% from the comfort of your home or business office.
Another reason business owners may prefer alternative lenders and financing companies is because most do not have as strict requirements that must be met like most traditional banks . In fact, many business owners claim that loans through a bank are stricter, applications are lengthy, and even once approved, it can take some time to see the actual funds.
Why do business owners need financing from alternative lenders?
There are a variety of reasons why a business is in need of working capital from private lenders or financiers. The obvious reason is not always that their bank did not approve them as lot of business owners prefer immediately applying through these private lenders. The most common reason is actually to meet their business needs and receive access to working capital in a fast and simple way.
Most of the time, businesses need working capital to meet business expenses such as payroll, expansion cost, real estate, operating expenses, utilities, production cost, and even marketing costs. Others simply may have not had a good year or good quarter and need working capital to keep the business afloat while they try to increase sales. The good news is that these alternative lenders have a variety of lending options to meet these business needs.
Who Is a Good Candidate for Alternative Lending?
Traditional lenders look at various aspects of your small business, such as:
- Financial history.
- Time in business.
- Overall business plan.
This makes traditional lending difficult for many small business owners. The best candidates for alternative lending are those who can show viable means of repayment, yet don’t qualify under a traditional lender’s stringent requirements.
Specific Requirements Needed for Alternative Lending
Traditional lenders like seeing personal credit scores of 700 or above, annual revenues in the hundreds of thousands, and multiple years in business. Alternative lenders, on the other hand, are willing to accept much less. In fact, the minimum requirements of most small business loan providers are:
- Personal credit scores of at least 600, and some may even accept 500 and above.
- At least one year in business
- Around $100,000 in revenue annually, while some may accept revenues as low as $60,000.
- Enough ongoing cash flow to prove repayment ability.
Even if your credit isn’t perfect, small business financing is available.
Alternative Lending and Financing Options Businesses Should Consider
Here is a list of different types of lending and financing options that a business should further investigate to match your business needs. Remember, lots of things should be taken into consideration when deciding which financing options is best suited for your company. Things to consider is whether the repayment term will be short or long, if you have collateral, if it is for real estate, if you need a set amount of capital available to withdraw at any time, among others.
A great option for business owners that need quick access to working capital but can pay it back in a short amount of time. Short-term loans typically have less strict requirements and the approval process is much simpler than long-term loans. This option is very common among alternative lenders.
Line of Credit
If a business owner needs a set amount of capital available to withdraw at any given time, then a line of credit may be the right option. The best thing is you only pay back the amount you withdrew plus its given interest. Meaning, if you did not withdraw the entire set amount available you do not have to pay the entire amount back, only what you used.
An asset-based loan is just like a collateral loan. This mean that in order to be approved for the loan the borrower must have assets available to give to the lender should they fail to meet repayment terms. This type of loan is common in traditional banks as well as alternative lenders.
Invoice factoring is a form of advance that an alternative financiers provides to small businesses when they sell their outstanding receivables. This is common for businesses whose clients are not expected to pay for the goods or services immediately but rather have up to 90 days to pay it off. However, while the client has 90 days to pay, in the meantime business expenses come up that the business owner needs to cover with working capital received by this type of advance.
Merchant Cash Advance
The most common type of advance provided by alternative financing company is the merchant cash advance. An advance provides the business with working capital immediately in exchange for a percentage of the business’s future credit card receivables. A big thing to note is that for this type of business financing option the company must be able to accept credit card processing as a form of payment from the clients.
How to Apply for Alternative Lending
Application processes for alternative lenders or financing companies can vary, but they all have a few things in common, such as fast, easy approvals.
For instance, to apply with Rapid Finance, you’ll need:
- To provide identification.
- Your business bank account and routing numbers.
- The last three months’ worth of business account statements.
The application is just three simple steps:
- Click the Get Quote button to start your online application.
- Allow time for our team to review it.
- Wait for potential
Once your application is processed and approved, you may receive the funds directly in your business banking account in as little as 24 hours.
Being a business owner is hard in the best of times. The recent events around the world have made operating a business especially difficult. We’re here to help! Reach out to one of our advisors today to see how you can partner with Rapid Finance to keep your dream of business ownership alive.