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What are Alternative Small Business Loans?

What if you could secure the funding you need for your business from a source other than a traditional bank? Just 10 years ago, the options businesses had for funding were incredibly limited. For certain business types and industries, it was next to impossible to secure the cash they needed.

Today, the phrase “alternative lending” is much more common and has begun to really mean something to small business owners. It has become a very important part of the business financing industry.

But what are alternative small business loans? Alternative lending is a broad term that includes many new small business lending options available outside traditional banks. Alternative lending provides small businesses with the opportunity to quickly work with an online, private business lender to access a variety of financing. From term loans and lines of credit to invoice financing and short-term loans, the list of options is long.

Back in 2007, several of the top alternative lenders today became the first ever publicly-traded online lenders. Their services made a big splash in the lending industry at a time when businesses needed options desperately. One year later, in 2008, the Great Recession rattled the world and made it nearly impossible for small and mid-sized businesses to access credit from banks.

While the situation today has improved, it is still difficult for small business owners to find the cash they need. In the past, alternative lending supplied cash for previously unbankable business owners and unqualified business owners. Today, more and more business owners are choosing alternative lenders because it is simply the better option for a variety of reasons:

Speed. Alternative lending is well-known for being much faster than traditional lending. Rather than waiting weeks or months to hear back (only to find out you’ve been denied), your business can apply for an alternative small business loan and have cash in as little as 24 hours.

Flexibility. Banks offer term loans, lines of credit and business credit cards. Alternative lenders, on the other hand, offer a larger variety of loan options. A longer list of options means your business will be able to find a cash solution that really fits its unique needs.

Banks are also limited to offering loans of an amount that is economical for them. For example, a loan less than $250,000 is typically not economical for a bank. However, an alternative lender can easily offer loans between $5,000 and $250,000, thanks to their more efficient process.

Accessibility. The accessibility of alternative lending is hard to beat. Working with an online alternative lender involves a quick application process that takes minutes. Approval is quick. A small business owner can have working capital in the bank in 24 hours. In fact, according to a study by Harvard Business School, most major alternative lenders offer online applications that take just 30 minutes to complete.

Affordability. It’s true that banks can afford to charge low interest rates. They can offer such rates because they’re so selective with their borrowers. Alternative lenders, on the other hand, accept business owners that banks consider “risky”: shorter times in business, lower credit scores, less proven revenues and cash flow. Because of this, alternative lenders are forced to charge higher rates, but they base approval off of a wider pool of information. Your rate with an alternative lender will ultimately be determined by your credit score, time in business, annual revenue and whether your make a profit.

Would you like to learn more about what your alternative lending options are? Does an alternative small business loan sound right for your business and its goals for growth? Consider working with our team of experts at First American Merchant. Simply fill out an application (it takes just minutes), get approved, and have your funds deposited in as little as 24 hours.