Although it’s sensible for businesses to mull over traditional lending options, alternative lending has become increasingly popular. The fact remains that certain barriers prevent many startups from accessing funds provided by established financial institutions. Non-traditional lending partners don’t have such severe limitations. Here are some reasons for choosing unorthodox financing, even if major banks desire your patronage.
Established institutions tend to be stuck in their ways. Generally speaking, their interest rates remain fixed. Alternative lenders are usually not saddled by set fees. You can use negotiating savvy to bring down your rate. In fact, you may not even need to engage in the bargaining process, as intense competition is constantly making rates increasingly affordable.
Speed is arguably the biggest reason for working with an alternative lender. Big bank applications typically have complex requirements. It takes serious effort to gather proof that their standards have been met. You’ll need information regarding your credit score, debt-to-income ratio, and overall corporate history. You may even be required to put up collateral before they are willing to make an offer. Likewise, checking customer applications is a time-consuming process. This administrative stage can take weeks or even months.
Alternative lenders, on the other hand, are sometimes able to get you money within hours. Big banks simply cannot act with that level of speed. Over the course of running your venture, events that demand immediate cash may occur. By the time an established lender processes your application, your business may have suffered irreversible damage. Use an alternative lender to escape this possibility.
Loans that come from traditional lenders often have restrictions on the ways they are to be used. Violations of these terms can result in fines, as well as demands that you immediately pay back your loan. Alternative lenders typically are free of such limitations. They won’t even ask how you used the cash; what you do with it is entirely up to you.
Likewise, larger banks are not interested in smaller agreements. It’s common for them to limit themselves to deals that are at least $200,000. On the flip side, alternative lenders believe strongly in microloans. Many of these operators are happy to sign agreements for much lower amounts.
Alternative lending has many advantages that traditional loans do not. Despite their reputation, they have positive qualities that make them worth considering. Think about using one the next time your venture faces a financial crunch.