There is a time and place for traditional business lenders, otherwise known as banks. However, they are not always the right option. Sometimes is takes too long to get funding from a bank. Maybe you do not qualify for a loan from a bank. This can be the case even if you are perfectly capable of repaying your debt. If business borrowing from a bank isn’t going to work for you, your next option is alternative lenders.
What Are The Pros and Cons of Using Alternative Lenders?
Alternative lenders are a totally legitimate option. They are exactly what their name implies, an alternative to traditional banks. However, just like banks, they have both pros and cons. You need to know and understand each when looking for financing alternatives for small businesses.
What Are the Pros of Alternative Lenders?
First, with alternative lenders, you typically get your funds much faster. So, if you need fast cash, this could be the way to go.
Also, the application process is usually faster and easier. Often you can apply online in a matter of minutes. Repayment terms are usually more flexible as well.
Find out why so many companies use our proven methods to get business loans.
Even better, these lenders will often take more into account that just credit score when it comes to approval. If there is a minimum credit score requirement, it is usually much lower than what traditional lenders require.
As a result, they have other eligibility requirements. These may include minimum revenue over a certain period of time, a minimum amount of time in business, minimum average balance in a business bank account, or all three. Other requirements may apply as well.
What Are the Cons of Alternative Lenders?
One of the biggest drawbacks of alternative lenders is that their interest rates are almost always higher, though rates vary based on perceived risk.
Also, the industry is a breeding ground for scammers. It’s important to know how to recognize predatory lending practices to avoid being taken advantage of if you are looking for an alternative lender.
Best Options for Alternative Lending: Top Alternative Lending Companies
Despite the risk of running into a predatory lender when it comes to alternative loans for businesses, there are some good companies out there. To give you a start, here are some alternative business financing options that we know and trust.
Fundbox
Fundbox makes it easier to get approval for financing. The minimum credit score is 500. Comparatively, this is much lower than with other lenders. Here are some things you need to know about Fundbox. First, they consider business merit as opposed to personal credit. For application purposes, they will do a soft pull on your personal credit. This will not affect your credit score. When you make your first draw, they will do a one time hard pull that could affect your score. Keep that in mind.
Kiva
Kiva is an online lender that is a little different. For example, the interest rate is 0%. That means even though you have to pay it back, it is absolutely free money. They don’t even check your credit. Still, there is one catch. You have to get at least 5 family members or friends to give to the cause as well. In addition, you have to pitch in a $25 loan to another business on the platform.
Accion
Accion is a nonprofit lending network dedicated to helping small businesses. They offer small business loans, some grant opportunities, and other resources designed to help both startups and established small businesses grow and thrive.
Globally they have been working their magic for 55 years across 4 continents. Tens of millions of entrepreneurs have been helped by them. They came to the United States in 1991.
They lend to small business owners in general, from all backgrounds and most industries. However, they specialize in underserved populations like minorities.
They do not rely as heavily on credit as traditional lenders. Yet, they do require a minimum personal credit score of 575. The one exception is the Community Advantage program which requires a minimum of 525.
Other restrictions may apply based on a number of factors.
Streetshares
Streetshares offers a variety of financing and investment products with fast application processes and funds deposited almost immediately. Lending products never have a prepay penalty, and the credit check is a soft one. There is never any impact on your credit score for applying.
They lend to various types of businesses and business owners. Still, their early mission was to help veteran business owners, and they remain true to that mission today.
Find out why so many companies use our proven methods to get business loans.
Credit Line Hybrid
This is alternative business financing rather than a specific alternative lender. The Credit Line Hybrid is a unique and powerful product that can serve your business needs in many ways. It allows you to fund your business without putting up collateral, and you only pay back what you use.
Your personal credit score needs to be at least 680. In addition, you can’t have any liens, judgments, bankruptcies or late payments. Furthermore, in the past 6 months you should have less than 4 credit inquiries, and you should have less than a 45% balance on all business and personal credit cards. It’s also preferred that you have established business credit as well as personal credit.
If you do not meet all of the requirements, it’s okay. You can take on a credit partner that meets each of these requirements. Many business owners work with a friend or relative to fund their business. If a relative or a friend meets all of these requirements, they can partner with you to allow you to tap into their credit to access funding.
What are the Benefits of a Credit Line Hybrid?
As alternative funding sources go, this is one of the most flexible. There are many benefits to using a credit line hybrid. First, it is unsecured, meaning you do not have to have any collateral to put up. Next, the funding is “no-doc.” This means you do not have to provide any bank statements or financials.
Not only that, but typically approval is up to 5x that of the highest credit limit on the personal credit report. Additionally, often you can get interest rates as low as 0% for the first few months. This allows you to put more money back into your business.
The process is fast, especially with a qualified expert to walk you through it. Also, approval for multiple credit cards creates competition. This makes it easier, and even likely if you handle the credit responsibly, that you can get interest rates lowered and limits raised every few months.
Find out why so many companies use our proven methods to get business loans.
Alternative Lenders Are a Viable Option, But Be Careful
You can’t be too careful when looking for alternative financing methods for your business. The safest way to ensure you don’t fall prey to a scammer is to work with a business credit expert. They will not only have relationships with credible lenders, but they will also be able to help you find those with products and requirements that best fit your needs. CreditSuite has business credit experts ready to help. They have the skills and expertise necessary to help you navigate the business funding world. They can guide you toward products and lenders that will work best for your needs, and help you improve your fundability in the process. With strong fundability, you can access all types of business financing, alternative or not.
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