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Should I Get Small Business Funding from an Alternative Lender or Bank?

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Alternative lending is big business worldwide. If you conduct a Google search on “alternative lending,” “alternative lenders” or “alternative lending statistics,” you’ll see posts going back several years and spanning both sides of the Atlantic and Pacific. The sheer number of results indicates that something’s going on in the world of finance.

So do the financial figures. A report from Let’s Talk Payments (LTP), a FinTech research firm, predicts that alternative lending could rest at $350 billion by 2025. Not exactly chump change, right? If you add the online element — LTP breaks out its figures by peer-to-peer (P2P) and online — the dollar amount increases to a cool $556 billion.

The research firm says the growth can largely be attributed to small business customers. They need cash, now, but don’t qualify for a traditional loan for one reason or another. But fast cash isn’t the only reason to seek out an alternative lender. Other benefits exist, and they’re shared here so that you can decide if alternative lending is right for you.

Fast Cash

When you need money for your small business or organization, you might automatically leap to traditional loans and grants. It’s not unexpected. The two funding options are basically hardwired into the small business owner DNA. Plus, the two are beneficial. They can fill needs that alternative lending might not.

However, standard applications for a loan or grant often require pounds of paperwork and patience. When you apply for one, you can wait for weeks and sometimes even months before hearing anything but crickets. But you need cash, now. The walk-in freezer broke, or you need to hire a new chef to meet increased customer demand.

Those challenges can’t wait weeks or months. They need to be resolved, now. And they can be with alternative lending. Many small business alternative lenders will approve your application within hours or days. The money often goes direct to your account, too, through ACH or cash transfer. With that money in the account, you can keep the ice cream cakes from melting and prevent the perfect chef from walking out the door.

Fewer Requirements

Small business loans and grants typically feature stringent requirements. You must embody certain characteristics and meet specific thresholds. For example, SBA grants tend to help small businesses in technology and agriculture, not necessarily the guy trying to get an air compressor for his custom bike shop.

Standard bank loans also feature rigorous requirements. These can range from your time in business to the presence of collateral. Banks may pay inordinate attention to your credit rating and financial wellbeing, too.

Small business alternative lenders will pay attention to some of those elements. However, they may not require all of them. Some providers, such as those working in the merchant cash advance (MCA) space, might not require anything more than records documenting business health and ability to repay.

Multipurpose Use

If you’ve taken out a small business loan or received a grant in the past, you know that they sometimes come with stipulations. The provider says, “We’ll give you this money as long as you use it per the agreement.” If you do, great. If you don’t, trouble could come your way.

The small business lender could reverse the loan agreement. It might add a fine or penalty. It could even put you on some sort of black list, preventing you from seeking out a loan or grant for the foreseeable future. They have the right to do those things; you broke the rules, rendering the agreement null and void.

Alternative small business lenders could employ those same regulations, but they rarely do. They tend to offer more flexible financing with fewer guidelines and oversight. They say, “We’re going to give you some money. Take it, and grow your business bigger and better.”

Personalized Funding

If you’ve ever felt like a stranger at your own financial institution, you’re not alone. Banks, especially the larger ones, aren’t in business to become chums. They exist to make a profit.

Unfortunately, that could mean they leave out the little guy, i.e., the small business owner. Small business lending can be risky and cost prohibitive, somewhat explaining the trend toward big banks collaborating with alternative lenders. By working together, they decrease risk and costs and help more small business owners.

If your bank isn’t one of those collaborators, you might want to take a closer look at alternative lending. The companies providing alternative financing often are smaller or focus exclusively on small- and medium-sized business owners. To them, your success is the whole point. Because of that, they’ll work alongside you to identify the best loan product for your situation.

Flexible Terms

Finally, traditional loans often claim strict repayment terms and interest rates. The strictness makes sense. Because state and federal governments regulate most loan products, compliance is a huge concern for traditional lenders.

Small business alternative lenders sometimes come under less scrutiny because they offer different funding options. Loans fall under the purview of the government. Lines of credit and merchant cash advances, though, are commercial transactions.

That fact means the financing products receive scrutiny from other governing bodies, such as the Uniform Commercial Code (UCC). The UCC contains several laws that dictate how financial and other transactions are to be handled. The laws are relatively flexible, allowing an alternative lender to create terms suited to your circumstances.

Alternative lending can be hugely beneficial when you’re in a pinch. If you need money, now, or can’t get a traditional loan, reach out to RapidAdvance. We’ll help you get the money you need to make your business succeed in 2017.

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