Is your small business in the market for financing? While traditional bank loans may be the first thing you think of when considering your small business funding options, they’re not necessarily the best choice for every business. Here are some of the reasons alternative business loans can actually be more beneficial:
Alternative business loans have a shorter term length
A traditional small business loan, or term loan, generally has a one- to five-year term, which works best if you need the money over a longer period of time.
In contrast, alternative business loans typically have shorter repayment terms — six months to two years, in most cases. If you’re seeking the loan for short-term purposes, an alternative lending source could be a better fit.
Funding is faster
Traditional bank loans typically involve a lengthy application process. First, there’s lots of paperwork to complete; then you wait weeks or months to hear whether your loan is approved; and then you have to wait until the money actually gets into your account.
Alternative business loans fund quickly, which is one of their biggest advantages. In many cases, you’ll hear back from your lender within 24 hours, and get your loan funded within 48. This is an ideal solution if your business needs cash quickly to take advantage of a business opportunity or get over a short-term cash flow hump.
Less paperwork to deal with
Speaking of paperwork, the ease of applying for alternative business loans is a huge plus. Instead of having to complete a business plan and provide financial statements, tax returns, bank statements and more, the application process is usually a simple matter of answering a few questions online.
When you need a loan fast, who has time to spend days putting together paperwork and scanning, mailing or faxing a bunch of documents? Alternative financing solutions enable you to get the answers you need quickly, without sinking a lot of your valuable time into preparing a loan application that may not pay off.
No collateral needed
In order to obtain a traditional bank loan, you often need to put up collateral, which can be risky for your business or your family. In contrast, alternative financing sources almost never ask for collateral. No more worries about losing your home if you can’t pay off the loan.
Who wants to have a loan on their books for years? If you take out alternative business loans such as short-term loans, you will repay the loan faster and get it off your accounts. That’s because many of these loans are repaid with daily payments drawn directly from your bank account or business credit card sales, rather than a monthly lump sum.
Also, delayed payback
Traditional term loans require you to begin making payments as soon as your loan is funded — even if you don’t use the money right away. Depending on the type of alternative business loans you obtain, however, you may not have to pay the money back right off the bat. For example, if you get a business line of credit, you won’t need to repay anything until you actually draw from the credit line.
While traditional business loans definitely have their place, if you’re in one of the situations mentioned above, alternative business loans could be a better bet for you.