The Definitive Guide to Alternative Lending
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Alternative lending refers to financing outside traditional banking institutions, typically provided by non-bank companies to small businesses. The industry has seen a rapid increase in lending, offering benefits such as less paperwork and faster funding, with approval ratings significantly higher than those of big banks. However, alternative loans may come with shorter terms, higher costs, and more frequent repayments, making it essential for borrowers to weigh the pros and cons before opting for this type of funding.
The Definitive Guide to Alternative Lending
- 1. The Definitive Guide to Alternative Lending
- 2. What is Alternative Lending? You know banks as the traditional financing institutions. Alternative Lending is lending that takes place outside of a banking institution, consisting mostly of non-bank companies that provide funding to small businesses. 2
- 3. 3 What does the industry look like? Let’s take a look at the numbers: The approval rating from alternative lenders is 61% - 64%. Big banks have a 13% - 20% rating on average. Alternative lending is an growing fast: approx. $3 billion in 2013 was lent through alternative channels (double that of 2012). Benefits of alternative lenders include: less paperwork, more flexibility, faster funding.
- 4. 4 A Few Examples of Alternative Lending: Microfinance lenders and institutions Pawnshops Money orders and money transfers you make outside of a bank Door-to-door money lending services Payday loans
- 5. 5 Advantages of lending online: Online alternative lenders use complex algorithms, software and all sorts of other non-traditional sources to scan your business’s financials.
- 6. Who could benefit from Alternative Lending? 6 Previously Bankable Business Owners Banks raised the criteria for business owners who could qualify for their financing, leaving them no chance to turn for extra capital. Previously Unqualified Business Owners Alternative lenders also cater to borrowers who wouldn’t have been eligible for a bank loan. 1 2
- 7. The Advantages of Alternative Lending 7 Speed & Ease of Application Applying for a business loan can take as little as 30 minutes Quick Turnaround Time Whereas banks can take a few weeks, to get back to you about your financing, alternative lenders will often send you their decisions in a matter of days, sometimes even within hours. 1 2 Speed, efficiency, and diversity of offerings can make a big difference. Here’s a list of reasons why:
- 8. 8 Flexible Underwriting Alternative lending lets small business owners grow their companies in ways they couldn’t when bank lending was the only choice. 3 Diversity of Loans Alternative lenders will let you get paid for your outstanding invoices upfront, order a bundle of business credit cards, crowdfund your idea, or go for the classic solutions such as term loan. 4
- 9. The Disadvantages of Alternative Lending Considering whether it’s for you? Consider those potential negatives: 9 Shorter Terms & Smaller Amounts Depending on the products you qualify for, alternative loans might have shorter terms in most cases. More Expensive Comparing traditional financing with a short-term loan, the price tag difference is a big one. More Frequent Repayments Plan ahead carefully - many loans given by alternative lenders have weekly or daily repayment schedules. 1 2 3
- 10. Kinds of Funding you can get from Alternative Lending: 10 Term Loan Loans with a set repayment time, a set number of payments, and a fixed/variable interest rate. Equipment Loans These let you finance up to 100% of the value of the equipment for your business, making it act as a collateral. This way lender cares more about its value rather than your credit history. Lines of Credit A business line of credit allows you to draw funds when you need, pay them back, and take out more later on.
- 11. Invoice Financing This form gives you an advance on the money you’re already owed, so you don’t have to wait for your clients to pay you before you can cover your own bills Startup Loans A broad category of alternative lending – different lenders have their own kinds of loans for new businesses without any history. Merchant Cash Advances This solution is tailored for those processing credit cards, giving an advance that’s paid back with a percentage of your daily transactions. 11
- 12. Getting Started Small business lending marketplaces like Fundera make it possible to get several offers with a single application. We keep it simply by delivering you trusted best-fitting options from the most trustes lenders in the industry. 12