Small Business

Alternative Lending: The Right Way to Fund Small Businesses

Alternative Lending: The Right Way to Fund Small Businesses

Regardless of the size, every business requires credit access to survive and thrive. And there is no shame in seeking financing options. Every business needs some sort of financing to stay in the game, or a little push to launch. As a matter of fact, small businesses have relied on banks for funding for centuries but as the dynamics of financing have shifted, the lending model has also transformed.

In recent years, the narrative surrounding the financial industry has often been about change. Funding specifically has seen a more vital change in conducting business. Addressing the pain points of traditional lending and adapting to the new dynamics of the technological age, the lending industry has revolutionized. 

Alternative Lending- the Biggest Disruption?

It is safe to say that alternative lending was amongst the earliest disruptors in the financial industry as lending shifted from being bank-centric to FinTech oriented.

FinTech is an emerging industry that fills the voids in traditional lending industry by enabling and supporting financial services through innovation. This revolutionized way of lending gives a shot to businesses of any size at qualifying for funding of different sorts.

What Is a Non-Traditional Loan?

Breaking away from the traditional forms of lending from banks, non-bank lenders offer a more comprehensive approach to business loans. While borrowing from traditional banking lenders meant going through notoriously stringent checks, non-traditional loans from alternative financing companies are simply otherwise.

It is important to understand the gaps that aided the need for non-bank lenders and non-traditional loans. While every large business got hit by recession, small businesses also felt a serious blow. One of the most important areas affected was access to credit. Subsequent to the change in events, access to loans and credit from banks (and traditional financial institutions) dipped so low that it became hard for businesses to survive.

All this comes on the back of stress tests and stringent checks that go beyond mere credit checks and include evaluation of a wide variety of additional checks. And banks’ customers, especially small businesses found themselves in a pickle.

Facilitating the need for a lending arm that would help small businesses qualify for loans, the alternative lending institutions became the goto lenders in the financial industry.  

Why Consider Alternative Lending?

Whether you need money to expand existing business, start a new company or need a cash injection to continue operations, alternative lending sources offer different borrowing options.

Flexible Qualification Criteria

While banks are more inclined to reject small business loans and prefer to lend to established businesses, alternative lenders keep their lending requirements easier and extend loans to businesses with lower credit scores. Even if you are in the thick of running daily operations and fear being turned down by the bank, you still have plenty of options.

Easier and Quicker Access to Funds

No more tedious paperwork or repetitive legwork. You can now raise capital right from your mobile device. And since alternative lending is not affected by regulations and red tape as much as for banking lenders, access to loans is much faster.

Take FundThrough for instance, where funding decisions are made in one business day. All it takes is three simple steps.

Lower and Simpler Fee Structure

Alternative lenders might charge high interest rates to balance the scale outs of extending loans to newer businesses with low credit scores. However, there are some lending options that are still competitive in pricing. For example, Invoice Factoring lets businesses maintain their cash flow and bridge the gap between receivables without paying hefty charges.

Lending Options for “Your” Business

As online alternative lenders sprung up to fill the gaps left by banks, you might find yourself in a difficult situation as you seek a lending option that best fits your needs. Unlike banks and other lenders, alternative lenders have the room to try out different kinds of loans. As a result, there are several lending options available. Some of the best alternative lending options for you are:

Invoice Factoring

Invoice factoring allows businesses to fund their receivables by borrowing loans equivalent to the outstanding invoices. This means that you do not have to wait for your invoices to be paid. You can maintain your cash flow and infuse capital as soon as you feel the need for it.

One of the most prominent pain points of business operations is cash flow management and small businesses tend to be the biggest victims of the cash crunch. If you are a small or medium-sized business, it is important that you keep getting orders and you have enough capital to cover your costs. FundThrough allows you to save time and resources, and stay focused on growing your business without worrying about working capital.  

Lines of Credit

Business lines of credit cover temporary credit shortages and are used to increase working capital or cash flow gaps in times of unexpected events. This option of funding is great to have for a rainy day but it comes with high interest rates and it is sometimes hard for startups or new businesses to secure lines of credit without collateral.

Merchant Cash Advances

Merchant cash advance, another form of alternative business loans that gives companies the option to take an advance funding in exchange for a portion of future sales. The advance is usually repaid daily or weekly and helps businesses support their funding gaps. However, it is important to consider that merchant cash advances can be expensive given its fees and interest rate, and should only be used as a final resort.

Angel Investors & Venture Capitalist

Angel investors and venture capitalists can be companies or individuals who support ventures and start-ups. Both parties help startups and businesses secure enough capital to successfully launch their project. However, it is not easy to find an angel investor or a venture capitalist, without a breakthrough business idea.

One Size Does Not Fit All

It is integral to understand the needs of “your” business before deciding on a particular alternative lending option. Understanding these options will empower you to make smart lending decisions.

FinTech companies such as FundThrough have the tools which give you the flexibility of putting your business first and get access to funds within a day as per needs of your business.

Looking to get paid on your invoices instantly? Get the funds in your account now with a few clicks