After the recent financial crisis, traditional banks are more reluctant than ever to fund small businesses. Entrepreneurs need not be discouraged though, as a new trend has emerged in the world of finance: “alternative lending.” What exactly is alternative lending and is it right for your business? Here are some resources to help demystify the latest options in small business financing.
“Alternative Lending” Defined
You may walk through open doors of your local bank only to hit a brick wall. According to this Alternative Lending e-guide, traditional banks decline up to 80% of small business loan applications.
Enter the “alternative lenders,” aka non-bank lenders. With faster underwriting and shorter decision processes, alternative funders have grown increasingly popular. They lent approximately $3 billion in 2013, double the amount from 2012. Banks tend not to loan amounts less than $200,000, so alternative financing appeals to small business owners in need of smaller loans.
Types of alternative funding include term loans, merchant cash advances, factoring and equipment loans, and you can apply for alternative financing online.
Beyond Brick-and-Mortar Banks
It seems like you can find everything online, even money for your small business. In the SCORE online workshop, “An Insider's View: Securing Capital to Grow Your Business,” Ty Kiisel, Contributing Editor at OnDeck, explores these new financial options in depth.
Applying for online business loans requires less paperwork with a shorter wait period. You can often learn your fate in five minutes and receive funding in 24 to 48 hours. However, interest rates are often higher than those of traditional bank loans.