If you are a business owner, then you are aware of the importance of having adequate funds available at all times. You can never determine when a costly emergency might arise, or even the necessity to make certain upgrades to your business. If for some reason your business doesn't have the funds available and there is a current need, then you might need to head to your bank and apply for a loan. However, if you are unfortunate enough to have less-than-perfect credit, or you're otherwise unable to qualify for a conventional loan, then you might be looking for other options. Luckily, there is the option of obtaining an alternative loan to assist you with your business financing needs.
What is an alternative loan?
An alternative loan is a loan that allows a business to borrow funds from a source other than a bank, credit union, or similar financial institution. There are many alternative loan types, including automated clearinghouses (ACH,) funding through merchant cash advances, and various other kinds. ACHs and merchant cash advances are similar types of loans that are considered business payday loans. Qualifications for ACHs and merchant cash advances vary from lender to lender, as different lenders impose different fees and repayment guidelines. Similar to personal payday loans, on your next "payday," your payments will begin towards repaying your loan.
The type of alternative loan that you are eligible to apply for will depend on several factors, including the type of business that you have and the amount of profits that you bring in on a regular basis. Some lenders require collateral while other loans simply require a certain amount of funds to be available in your business bank account.
An increase in the need for alternative lending
With banks and similar financial institutions continuing to become more and more stringent with their loan qualification requirements, even people whose credit would have qualified them in the past may not necessarily qualify now. In order to meet the needs of the business owners with slightly flawed credit who simply need a bit of cash, increasing amounts of alternative lenders are becoming available. These lenders are aware of the increased need for business funding, and they understand that many businesses in need of quick cash actually do have the funds, yet they are currently inaccessible.
The advantages and disadvantages
There are many advantages of obtaining an alternative loan. One definite advantage is that unlike banks and other traditional lenders, it is not necessary to wait for extended periods of time to receive funding after approval. Once an application has been approved, funding is normally very, depending on the specific lender, as well as the type of loan. In some cases, you could have access to funds in as little as 24 hours.
An additional advantage of non-traditional loans is greater flexibility with repayment. While banks and credit unions require a minimum payment amount each month, alternative lenders will often allow borrowers to make varied payments each month. For instance, if your business has a few slow months and you don't make as much in profits, then your payment for those months can be lower. As your profits increase, so will your payment amounts.
There are some disadvantages of alternative loans, however, most businesses that can't or won't go the traditional loan route feel that the disadvantages are insignificant. Since there are so many types of alternative loans, the disadvantages will depend on the specific funding type. One disadvantage of alternative loans is that many lenders require that you earn a certain amount of profits each month. If your business is new or earnings can't be predicted, then it will be more difficult for you to receive approval.
Another disadvantage of alternative lending is that interest rates are usually significantly higher than with bank or credit union loans. This is especially true with merchant cash advances and ACHs, as they are taking a greater risk, which is one reason why their rates are so much higher.
Where to find an alternative loan
Finding the right lender to finance your business project is important, and you certainly want to ensure that you only deal with reputable, honest lenders. With so many criminals coming up with potential scams, it could sometimes be difficult to differentiate between legitimate and potentially predatory alternative lenders. Your best bet for finding the best alternative lender is to check with the Small Business Administration. This agency can provide you with a list of funding sources, including financial institutions, alternative lenders, grant providers, and more. There are some reputable online lenders available, and as long as you're careful to verify their legitimacy in advance, then you could find yourself a great way to obtain funding.
So, whether you need to expand your business, install a much-needed HVAC system, or something totally different, you should be aware that there are financing options available to you, regardless of your credit history. Alternative loans are a great option for people with bad credit, and depending on the alternative loan that you choose, it may not even be necessary to submit to a credit check. You should keep in mind that the more established your business is, and the higher your monthly profits are, the higher your chances will be for securing the financing that you seek. Furthermore, if your plans to seek funding through one source falls through, then you should search for other options.