Over the past several years, banks have largely pulled away from lending to small businesses. They’ve done so primarily because they’re more averse to risk, plus it’s typically not profitable for them to make loans that are less than $250,000.
To meet the demand for small business loans, dozens of non-bank lenders (aka “alternative lenders”) have been doling out more and more capital. It’s estimated that alternative loans to small businesses totaled $3 billion in 2013, which is double the amount lent in 2012.
While the rising tide of alternative lending is a great thing for small businesses, it’s still overwhelming to make sense of it all.
In this short e-guide from Fundera, you’ll understand how alternative lending differs from traditional lending, and how best to approach it.
1. Banks are restricted in making loans because they’re using our deposits for those loans; on the other hand, alternative lenders get their money elsewhere.
2. Alternative lenders use technology to make quick decisions.
3. You probably won’t be able to get a traditional bank loan if ANY of the following apply to you:
- You need less than $250,000
- You’ve been in business less than 2 years
- Your credit score is less than 640
4. Setting the story straight: SBA loans are actually bank loans and thus are very hard to obtain.
5. Alternative loans are far more costly than traditional loans; however, while the rates are higher on alternative loans, the good news is that the capital is actually available to small business owners.
6. There are different types of financial products available to small businesses, such as: term loans, cash advances, factoring, lines of credit, and equipment loans. Each product has its own nuances that should be well understood before accepting.