You’ve decided to move your business plans forward, but there’s one last consideration before you can cut the opening-day ribbon: financing. You need to select from two general options to use traditional or alternative financing.
In the past, everyone went to the bank or another traditional lender. However, alternative lending programs in today’s market can provide a fast and easy business loan for nearly any type of business.
Alternative financers tailor business finance solutions for individual enterprises based on current needs and provide liquid cash quickly. Each option has pros and cons, but which is best for you?
What’s a traditional lender?
A bank or credit union is a viable source for loans and credits, and they need to abide by a strict set of rules and regulations that make qualifying for a loan more difficult.
Banks offer a breadth of financial services and may offer lower rates, but they also charge higher banking fees. To appease a bank loan application, you must meet preset criteria and provide a high credit score, eliminating many struggling and new businesses.
An alternative lender does what?
Alternative lenders make borrowing money easier and have a higher loan approval rate. Freshly minted enterprises often turn to alternative lender resources to quickly receive funds without an overdrawn process.
But why do alternative lenders charge more for their loans? Alternative lenders have overhead too. While these financiers may not have brick and mortar structures, they invest in technology, cloud software, automation, and marketing to their clients.
Another cost alternative lenders pass on to the borrower is the speed of their service, which may be more convenient for anyone starting a business.
Pros
One of the best things about alternative lenders is there is no complicated application process. Alternative lenders provide loans based on your bank statement, tax return, a void check, a business license, and your average credit score and invest in the potential of your business.
Traditional lenders live with strict approval criteria while alternative financing solutions seek opportunities and invest in the future of businesses. Banks have shareholders who aren’t fond of high or mid-risk loans, leaving many entrepreneurs out in the cold.
Alternative financing solutions turn requests for funds around quickly and release the funds to put control and financial security back into the hands of business owners.
Cons
There is always a downside with all things in life, but that doesn’t mean you can’t turn it to your advantage. Alternative lenders provide businesses with funds quickly but at a cost.
The alternative or fintech loan provider has been on the finance radar for many years. Still, due diligence in finding a reputable institution may be the biggest con you need to navigate.
Alternative lenders charge higher interest rates and factor rates but have softer fee structures than traditional banks.
Decision time
Business entrepreneurs dedicate their lives to their business’s success, which puts them on par with alternative lenders. These leaders saw a niche opportunity in the market and conquered that industry. Alternative lenders are a viable solution. While many elements of running a successful business are out of your control, you should consider reaching out to an alternative lender and discussing your options when you feel that your negotiated payment terms are insurmountable.
