Access to funding is crucial for the success and growth of any small business. Loans and financing options help companies fund their operations, purchase inventory, acquire equipment and technology, seize new opportunities, and more. Unfortunately, it can be difficult for many business owners to obtain traditional forms of funding for various reasons. These may include a less-than-perfect credit profile, inadequate cash flow, or insufficient collateral. That is where alternative lenders can help.
Alternative lenders have more favorable borrowing requirements than traditional lenders, making it easier for businesses to secure term loans, funding to lease equipment, and business lines of credit. This Huddle Business Capital blog article provides an overview of alternative lending for businesses.
What is alternative lending?
As the name suggests, alternative lending is a non-traditional form of lending that provides businesses with flexible and accessible funding options beyond what standard financing institutions offer. The types of alternative funding available are typically the same as those offered by traditional lenders, with a few exceptions we will discuss later in this blog post. However, most alternative lenders specialize in smaller loan amounts and shorter repayment schedules.
What sets alternative business lending apart is its ability to cater to a broader range of borrowers, including those with credit concerns or limited collateral. By leveraging technology and data-driven algorithms, alternative lenders can assess creditworthiness based on factors beyond credit history, such as cash flow projections, annual revenue, and time in business.
An easier path to business funding.
For the above reasons, alternative business lending has emerged as a game-changer for small and medium-sized businesses seeking loans and financing options. But this type of lending offers additional benefits, too. For starters, there is no need to drive to a brick-and-mortar location and fill out paperwork.
Most alternative lenders, also called online lenders, streamline the process with secure web-based applications that can be completed quickly. Business owners can submit their applications online without needing collateral and receive approval decisions within hours, accelerating the process and offering greater convenience.
Fast turnaround times.
Traditional loan application review and processing methods can be time-consuming and frustrating, often leaving business owners waiting weeks for fund disbursal if their applications are approved. This is not the case with alternative lending, which affords business owners the benefits of faster turnaround times.
The funds are provided promptly once a business owner's application is approved and all required documents are provided. It is not uncommon for some alternative lenders to offer same-day funding for loan and equipment financing requests of specific amounts. This eliminates the need for lengthy waiting periods associated with traditional loan and financing options.
Common types of alternative lending.
Depending on the alternative lender a small business owner chooses, they may find a wider variety of loan and financing products than what traditional lenders offer. Common alternative lending products include term loans (short-term and unsecured), equipment financing, equipment leasing, and business lines of credit.
Some alternative lenders offer financing for customers of equipment vendors and manufacturers. By offering in-house financing, vendors and manufacturers can add value to their businesses and shorten the sales cycle. As such, they can move more inventory and generate more profits.
Choosing an alternative lender.
The market is filled with alternative lenders that cater to the needs of small businesses. When selecting one for your small business, there are many things to consider. These include their product offering, processing speed, interest rates, and term options.
In addition, it's essential to select a lender that prioritizes customer satisfaction. A reputable lender will have responsive customer support and be readily available to answer any questions you may have before and during the application process. It would also be advantageous to work with a lender that helps you select a funding solution based on your business's immediate and long-term needs and strategic goals rather than offer a one-size-fits-all product.
This Huddle Business Capital blog article is purely educational and contains general information and opinions; it is not intended to provide advice or recommendations of any kind.