Business owners need capital for working. With alternative business loans becoming more and more popular, there are many options for alternative business funding.
Alternative business lending is available to small businesses in numerous forms, including small business loans, equipment leasing, asset-based lending, cash advances to name a few. To obtain businesses financing as quickly as possible, many business owners access alternating financing company, capable of assisting businesses of all sizes and industries. Of course, businesses often turn to finance companies only after finding out that they do not qualify for a loan in a traditional financing situation. Or, in many cases, the timeline between application and the bank’s financial decision takes months, insufficient to fulfill a firm’s immediate needs for funds.
Let us explore what qualified as alternative business funding and what is the best option to consider.
Many readers might feel it funny to see SBA loans to see on the list. Why? They are offered by banks which don’t fit into the definition of business funding. However, they are a great option if you don’t qualify for a traditional bank loan. SBA 7(A) loan, a general working capital loan is by far the most popular among SBA loan programs. SBA loans are partially guaranteed by the government, and so lenders are able to make loans to businesses they usually might not as some of the risks are eliminated. It is an excellent news for businesses as SBA loans make some of the best products in the market. The major cons of SBA loans are that they can take weeks to process. So, if you are in a hurry, it is advisable to consider alternative lenders small business.
Term loans are business loans in the truest sense. With a term loan, a lender gives you a fixed sum of money which you pay back with interest over a set period. As an alternative business loan, term loans are provided through online lenders and paid back in years with through monthly payments.
Though term loans fall in the category of affordable alternative business funding options, they are more expensive than bank or SBA loans. Their pros are – quicker application and cons are – they are difficult to qualify for, and very few lenders offer this financial product.
Equipment financing could be an excellent option if you are looking for financing option to purchase a new piece of equipment. Equipment loan enables a lender to advance up to 100% of the value of the equipment they want to purchase. The equipment then serves as collateral for the loan and lender pays back the loan as s/he would pay for a normal term loan. The pros of equipment loans – using the equipment as collateral help the lender to qualify for cheaper financing option, however, the cons is – it may take longer as they have to audit the purchase and if the equipment is likely to depreciate, it is better to lease them.
Short term loans operate similarly to term loans in which a lender is given a lump sum amount s/he has to pay back, at a cost, over time. The difference between the two is that repayment terms are much shorter, typically 3-18 months in duration and the cost is much higher. Short-term lenders usually quote their pricing as ‘factor rate’ but do not consider the same as interest rate. Shorter term loans are a good alternative for those who need money very quickly.
Merchant cash advance
Though not a significant one, merchant cash advances are a popular option among alternative business funding. This was one of the first alternative business funding products along with being the most expensive ones in the market. Merchant cash advance is basically a cash advance that a lender pays back with a set percent of his/her daily credit card sales. The pros are that payments increases or decreases with the sales and they are easy to qualify for. But, the cons is cost.
There are several alternative funding options for small business which might confuse you. It is advisable to consider all other options before landing on an option.