Alternative Lending... A New Age of Business Financing
Many of our clients first come to us with little or no knowledge of the alternative lending industry. Most simply have a need for additional capital and have been turned down by traditional “big bank” lenders and are unaware of the many alternative lending options available on the market today. In fact, big bank lenders approved a record-low 14.8% of small business loan requests.
In the wake of the financial crisis, financial institutions and regulators created the most restrictive lending environment in U.S. history. Small and mid-sized businesses across the U.S. they were shut out from financing and the capital required overnight to stabilize and grow the economy suddenly disappeared.
Alternative lending is a broad term used to describe the wide range of loan options available to consumers and business owners outside of a traditional bank loan. These alternative options are most commonly used when an individual or business owner cannot obtain a traditional bank loan for any number of reasons.
If you are a business owner and need capital but no bank lends you money because you do not meet the requirements … we tell you YES and help you get the funds you need with alternative loans such as Merchant Cash Advances, Credit Lines, Business Loans , Lines of Credit, Equipment Financing, Invoice Financing, Sub-prime SBA loans
Without it, far fewer entrepreneurs would be able to secure the funds they need to start new companies, deal with emergencies, prepare for trouble, or expand their businesses.
Alternative Lending vs. Traditional Bank Lending: What’s the Difference?
Alternative lending is much, much faster than traditional lending.
Since they are not traditional banking institutions, alternative lenders are not affected nearly as much by the government’s regulations of big banks. This is because banks make loans from our checking and savings accounts, while alternative lenders get money from other sources-like hedge funds, accredited investors, or secured lines of credit.
Alternative lenders also usually require less paperwork-they do not ask for a business plan or full financials, for example-so there’s less for you to gather and for them to process.
The technology aspect of alternative lending also plays a big role in its speed. With fast and efficient underwriting programs and highly automated applications, alternative lenders can process many small business loan applications without spending much time or energy.
Banks offer term loans, lines of credit, and business credit cards-the greatest hits of business financing.
But alternative lenders have the time and innovative wiggle room to try out other kinds of loans.
Want to use a piece of equipment, or even an outstanding invoice, as collateral? Not a problem Or interested in a startup loan that will help you build business credit? That’s available, too.
And beyond the kinds of loans you can get, most alternative lenders also make smaller loans than big banks do.
It’s not economical for a bank to make loans less than $ 250,000, but alternative lenders can easily make loans between $ 5,000 and $ 250,000 because of their more efficient processes. With alternative lending, even smaller businesses get the chance to grow.
According to a study by Harvard Business School, most major lenders offer full loan applications online on desktop or mobile that take 30 minutes to complete.
While applying for bank financing takes, on average, 25 hours for a single loan. And that’s not even accounting for the additional weeks-often months-of waiting to hear back, meeting with the bank multiple times, giving in physical paperwork, and more.
For small business owners in the thick of running their day-to-day operations, that time and energy can be a serious barrier to acquiring financing. Alternative lenders offer busy entrepreneurs the ability to secure a loan without sacrificing nearly as much.
Banks can afford to charge their interest rates because they are borrowers, and they can not get paid back.
Alternative lenders, on the other hand, accept entrepreneurs with shorter times in business, lower credit scores, less proven revenues and cash flow.
In order to balance the scales out, alternative lenders are forced to charge higher rates. That way, even if they only get a portion of the loan repayments, they will not be in a dangerous position.
With alternative lending, your interest rate depends on the typical factors like credit score, time in business, annual revenue, and whether you make a profit.
But there’s a wider range, depending on the kind of loan you get: you might snag at 6% SBA loan if you’ve got a credit score, or you could be looking at a higher double digits with loan products like a merchant cash advance .
What are the Best Alternative Loan Options?
There are a few different kinds of loans you’ll find in alternative lending. Some are straightforward, others take a bit more explanation, but all are useful to be aware of.
Let’s break them down into simple terms:
Merchant Cash Advance
If a business accepts credit card payments, then a Merchant Cash Advance (MCA) is a very attractive form of alternative lending. Instead of conventional financing, where a loan is paid back in monthly installments, businesses who use MCAs receive their loan, and then pay it back in the form of a flat percentage of credit card sales. For example, if a restaurant needs working capital, but can not get financing through regular bank loans, then the restaurant can get a merchant cast advance, use the funding as they see fit, and then pay it off through a small portion of the total volume of credit card sales. The higher the volume of sales, the faster the MCA is paid off.
Short-term Alternative Business Loans: A term loan is what most people think of when they think of small business financing. These loans have a set repayment time, a set number of payments, and a fixed or variable interest rate.
Business Lines of Credit: A business line of credit is “revolving,” which means you can draw funds when you need it, pay them back, and take out more later on. You can use your business line of credit to increase your working capital, purchase inventory, cover cash flow gaps, and deal with plenty of other financing needs you might have. It’s a great safety cushion to keep in your back pocket for emergencies or unexpected.
Factoring or Accounts Receivable Financing: Factoring is a form of alternative financing that will not only get a business the working capital it needs, but it is a great way to streamline accounting – even businesses who do not need money use factoring. Factoring is a method by which companies sell their overdue accounts receivables to a collection company in return for cash.
Equipment Financing: Is the use of a loan or lease to purchase or borrow hard assets for your business. This type of financing might be used to purchase or borrow any physical asset, such as a restaurant oven or company car.
MaraiD Realty & Partners™ can help you take the next big step in expanding your business. Our team of experts brings over many decades of investment banking experience in the credit, commercial finance, private lending and real estate financing. Our alternative business funding solutions can help your business to grow in a variety of ways. Apply now to see the cash advance you qualify for.
If you have questions… contact us today by phone 786-267-7222 or by email: Aida@MaraidLending.com