Financing a small business can be challenging, especially for anyone seeking a traditional bank loan. Fortunately, these alternative financing advantages can help get your startup off the ground or expand your existing business. 

More Types of Loans

Small businesses often require small infusions of money to meet their needs as they arise; however,  traditional banks typically do not approve small loans. Instead, various types of alternative loans can provide the necessary capital. These financing options include lines of credit, merchant cash advances, short-term, bridge, and installment loans, invoice factoring, equipment financing, and bridge loans. Any combination of these loans can help small businesses obtain funds to achieve their goals.

Higher Likelihood of Approval

Traditional banks reject the majority of small business loan applications they receive. Loan approval depends upon a business operating for at least two years, having a credit score of at least 640, and borrowing at least $250,000. Most small businesses do not meet these criteria; however, alternative financing sources have more flexible eligibility requirements. For instance, sometimes, alternative lenders will approve a loan based upon access to a business’s digital bank account statements. By considering alternative criteria, these lenders may even approve higher value loans than what traditional lenders would provide.

Fast Transfer of Funds

One of the most attractive features of non-traditional financing is a speedy transfer of funds. Whereas the loan application process of traditional banks can take weeks or months, most small businesses can receive approval of their alternative loan applications within hours. This timeline offers a significant advantage to businesses requiring an urgent infusion of funds to cover emergencies or operating expenses during slow times.  

Fewer Collateral Requirements

Before the final approval of a loan application, traditional banks require borrowers to designate specific assets as loan guarantees. In addition, banks can acquire and liquidate the collateral to recover lost funds if borrowers default, resulting in potentially devastating impacts on businesses.  

Alternative lenders do not have these collateral requirements. Instead, loan security takes other forms, such as future credit card and invoice receipts and the equipment a loan finances. In addition, some loans, including those from peer-to-peer lenders, do not have collateral requirements; instead, they require interest payments.

Alternative Financing Can Help Your Business

When you need to secure critical financing for your small business, a traditional bank loan is probably not an ideal solution. Instead, alternative financing options are better for obtaining funds to meet your most urgent needs or fulfill your business expansion goals.