Alternative Lending: A New Financing Solution For Small Businesses
Traditionally, businesses of all sizes have borrowed money from banks to fund their operations. Nowadays, however, certain other financing solutions for small businesses have become available in the market. These small business financing options are together known as alternative lending, a phrase which encompasses various sources of capital for startups, sole proprietorships, and smaller companies.
Traditional bank lending had long been the most popular, if not the only, source of funds for business owners. However, it is notoriously difficult for small businesses to qualify for the loans given by banks. Hence, many new-age business owners are now turning to alternative lending options to raise money in a secure and hassle-free manner.
An Overview of Alternative Lending
Alternative lending provides small business owners with a broader range of creative financing solutions. Unlike traditional bankers, who are more conservative in their lending practices, the online business lenders, who provide alternative lending options, offer a variety of creative and utilitarian financing solutions for small businesses such as lines of credit, medium and short term loans, and invoice financing.
Over the years, alternative lending has emerged as an essential part of the business financing industry, particularly in states like California, Colorado, and Georgia, which are hubs of entrepreneurship and the startup culture. Entrepreneurs in California, for instance, make widespread use of alternative lending to secure the funding needed to start new companies, expand their businesses, and deal with emergencies.
Without this new small business financing option, many of the businesses and companies that exist today would never have been conceived due to a lack of funds. Alternative lending has allowed would-be entrepreneurs to chase after their dreams even without the benefit of an inheritance or substantial family wealth. As a result, we now have a much larger number of small businesses, which, in turn, have given a boost to economic growth and provided employment for many.
Characteristics of Alternative Lending
Alternative lending is provided mainly by non-bank lenders, many of them operating online. Alternative lenders have a higher rate of acceptance and approval when it comes to requests for loans. Big banks usually approve of only about 13 to 20 percent of all loan requests that they receive. By contrast, alternative lenders have an approval rating of 61 to 65 percent, meaning that they provide loans to most small business owners who apply for financing.
Alternative lending is a fast-growing industry and is particularly prevalent in business-friendly states such as California. By 2025, it is expected that the industry will be dealing in sums as high as $200 billion. Some reasons for its growing popularity is that with alternative lending, business owners get more flexibility, less paperwork, faster funding, and fewer restrictions, all of which can help their ventures grow and flourish.
Primary Benefits of Alternative Lending
Ease of Application:
When it is time to apply for a loan, alternative lenders are leaps and bounds ahead of traditional banks. You need an Internet connection and a desktop or smartphone to apply for small business financing from a non-bank online lender. The entire process can take as little as half an hour and will most certainly never require more than a day. The method of applying is also a lot easier, more straightforward, and less stressful than with traditional banks.
The amount of time you will need to wait for the application to be approved is also much lower. This means that through alternative lending, business owners can secure financing much quicker than they would have through traditional methods. Hence, if you need money immediately to tide you over a business emergency or to help you take advantage of an opportunity, then alternative lenders are your best bet.
Many owners of small and medium-sized businesses, who may never have qualified for a bank loan, can get financing through alternative lending. With this money, a business owner can expand their operations, hire staff, or launch a marketing campaign to grow their business, none of which would have been possible if not for this unique small business financing option. You don’t need huge assets or extraordinary turnover to qualify for such a loan, which makes it accessible to many people who would have been left behind by the traditional banking system.
Alternative lending provides individuals, and companies access to entirely new and innovative forms of business financing. For instance, through this financing solution for small businesses, you can get paid upfront for any outstanding invoices for which your clients have yet to pay you, get a large sum of the cash at once and then pay it back daily with credit card transactions, or simply crowd-fund your innovative business idea through online platforms. Alternatively, you can also opt for a more traditional line of credit or term loan.
Some of the best known alternative lending options frequently availed by business owners in California and other states are term loans, equipment loans, business lines of credit, merchant cash advances, and invoice financing. You too can apply for such small business financing from any of the numerous online lenders operating in various states of the US.