If you are in search of the best alternative business loans, then this article was made for you.
You must have been let down by bigger banks while looking for loans, maybe to start up your business or to sort important things out.
Then read this first, here is the fact about the alternative business loans which can be gotten from traditional banks.
- Alternative business lending is more like a direct private money lending techniques, it is a marketing place for lending, it is also a crowdfunding board
- The traditional money lenders’ interest is quite lower; this is unlike the commercial banks where you need to pay back at a very high rate. This is the problem most people that get loans face, it is not easy!
- Alternative business loans include microloans, equipment financing, bridge loan, merchant cash advance, and a lot more.
Every young entrepreneur has something interesting they want to implement, but they lack adequate funding.
In this article, you are going to be getting information on the alternative ways to fund your business.
Let just go through the easiest means of getting loans for your business…
Table of Contents
Different Ways to Get Business Loans
Firstly, I will not advise you to start a new business with a loan, if you are a serious type, you can look for a job to save from the wages you will be earning.
This will allow you to build more money to start your business, no matter how great the innovation is, never try setting up a business without investing your money in it.
I am not only writing from my experience but also, this is what most successful business owners will tell you, starting with your money shows that you are serious with your plans, from there, there is no crime if you source funds from more places.
Now, you have some money to start up a business, but this money you have is not sufficient, how do you go about it in other to get more money.
- Source money from family and friends
This is a way to get a business loan, in this case, there may be no interest charges applied, but there is no issue if you feel like compensating them, you can give them something to show that you appreciate them, after you have paid them back the money you borrowed.
Getting funds from your family is the easiest way to get money for your business (provided you have the right family members that support your growth).
At the time you may be facing challenges of getting money from your family members, getting financial support from friends and family may also be the easiest way to get turned down.
- Source your fund from investors
Before you can get money from investors, this means you have gotten to an extent whereby your company must have been trusted.
You cannot get money from an investor in other to start up a business; no investor will come your way because they know you cannot be trusted, for now, it is very easy if intent to run away with investors’ money.
You cannot be easily traced because you don’t have a name yet …
So, before you can plan to get a business loan, be sure you have a working business (when I mean working, I mean a registered one).
This will help you get funds from investors.
Who are the alternative business loan lenders?
These are organizations that offer an alternative means where entrepreneurs can borrow loans for small business startups.
They are mostly referred to as alternative lenders because; they can substitute the commercial banks in lending money out to people.
The alternative lender is a mother-name that encompasses different lending models such as marketplace lending, direct private lending, and also the crowdfunding organization.
- The direct private lenders
These are organizations that use its money to issue loans instead of relying on the investors or depositors.
When you want to borrow money from this organization, there is a very high percentage that your loan will be granted.
- The marketplace lenders
This type of lenders connect borrowers directly to an investor, it is a market place whereby you can easily get a loan from investors if you meet up with the criteria.
While the commercial banks make a loan with the money deposited by the bank customers, the marketplace lender links the investors and the borrower directly to each other.
The issue you may be facing is having the criteria which the investors and the marketplace lender demand.
No one will be interested in funding money where they are not sure of getting their money back, so you may be facing the criteria challenges here.
- Crowdfunding platform
This is the funding technique that is very common in the category of startup businesses, an entrepreneur needs more money to make things work well.
This is how crowdfunding operates…
The platform gives small business owners a place to raise capital for starting a business, this capital is been raised by a large number of people.
The borrower set a goal and then launches the funding campaign for investors who are interested in donation, the interesting things about this are that you do not need to process before you get money, also I will not classify this as a loan, but an alternative business g funding.
Even if you will not need processing or criteria for this, you have to note that it may take time before you get to your goal.
In most cases, you don’t have to pay interest for this; it is quite like a nonprofit organization.
10 Best Alternative Business Loans
1. Term Loans
A term loan or an Installation loan is a traditional type of business financing historically obtained from a bank or credit union.
Term loan simply means a loan that is repaid over a set term (for example, 6 months, 2 years, or 5 years) with a fixed or variable interest rate.
Today, you can apply for a term loan online directly from an online lender’s website using a loan marketplace or via a crowdfunding platform.
2. Line of Credit (LOC)
A line of credit is a permanent amount of money that an alternative lender gives to borrowers, almost the same thing as the line of credit from banks.
It is a type of business loan you can get from either a bank or an online lender. But just like term loans, a business line of credit is usually easier to get online than from a bank.
A LOC can act as a financial safety net or source of working capital for a business and in effect, you are granted a sum of money from which you can withdraw at any time.
An online business line of credit is a good alternative financing choice for businesses that don’t need a specific amount of money but want access to extra funding to cover expenses.
Eligible business owners can use an online LOC lender like OnDeck to easily qualify for business loans. OnDeck has an instant funding option that allows you to transfer up to $10,000 from your LOC to an eligible debit card in just minutes.
3. Short-Term Loans
A short term loan is an alternative business financing product that you apply for online rather than from a traditional bank or credit union.
It is a type of online term loan but has a shorter repayment term (3 months, 6 months, or 1 year).
4. Online Loans
Online lenders like Lendio, BlueVine, Fundbox, etc, offer loans similar to those offered by banks like term loans and lines of credit. However, online loans are different from bank loans in that online loans come with less stringent requirements regarding your credit score, annual revenue, and time in business.
Online loans are easier to apply for and also take less time to be funded. The only downside is that online loans carry higher interest rates and fees than bank loans.
5. Bridge Loans
The bridge loan is also a short term loan; in this case, the loan is backed up by asset (collateral).
For instance, if you are a business owner his or her company for another location, it is easier to use the bridge loan, in this case, the old property will be used to buy the new property.
6. Personal Loans
It can be very difficult to get a traditional business loan if you haven’t been in business for long and don’t have much in the way of business revenue yet.
Fortunately, most personal loans can also be used for business purposes. Personal loans are usually structured as regular installment loans and your eligibility and interest rate are determined by your personal creditworthiness and household income.
You can expect to have access to a smaller amount of money like $35,000 or $50,000 with this type of financing.
7. Microloans
These are small loans of less than $35,000 (typically closer to $5,000-$10,000) offered at a low-interest rate. Microloans are usually given to startups or newer businesses in need of working capital.
Microloans often serve under-represented or disadvantaged groups like veteran-owned businesses, women-owned businesses, and minority-owned businesses.
Banks have never been interested in lending such small amounts of money but alternative lenders like a for-profit and not-for-profit lenders do lend such amounts of money.
8. Small Business Administration (SBA) Loans
SBA loans are a type of business financing that is partially guaranteed by the government. SBA loans are an excellent alternative to standard bank loans and in some cases can be gotten online through an online lender.
The Small Business Administration does not originate loans but guarantees a portion of a loan issued by a bank, credit union, non-profit, or other lenders.
The guarantee means that if you default on the loan, the Small Business Administration will repay a portion of the remaining debt.
To qualify for this type of loan, your business needs to be at least 2 years old, must have good credit, and provide a 10% down payment on the principal and some collateral.
9. Unsecured Business Loan
This is a form of business financing that doesn’t require any collateral for a small business to qualify – meaning that you won’t need to place your personal or business assets on the line and risk them being taken away should you fail to repay your loan.
The loan amounts and interest rate will vary depending on several factors like your credit score and your business’s monthly revenue.
10. Merchant Cash Advances
A merchant cash advance is a small loan that a business repays by automatically drawing on a percentage of future debit and credit card transactions.
Merchant cash advance loans typically have a shorter repayment period compared with other alternative business funding options.
Conclusion
Getting a business loan from a bank can be frustrating but with alternative business loans, you can be sure to get loans faster to invest in your business.
Consider going through the SBA and apply to a small bank or credit union if you want to apply for a bank loan rather than an online loan.
It is important you improve your credit score before you start applying for loans because the better your credit score, the better lending options you will have.
