Many small and mid-sized businesses want to obtain a bank loan, and it can be challenging to get one even with a good track record and strong financials. That’s because many banks need prospective lenders to show the available collateral, consistent cash flow, or a debt-to-income ratio to qualify for the loan. Only a few businesses can meet such needs and requirements. Hence, alternative lending or financing is a more realistic and appealing option for companies looking to expand operations and drive growth. But what exactly is alternative financing? And what are the types and benefits? Here is all you have to know about it.
What is alternative financing?
Alternative financing refers to a loan that can be secured outside a banking institution. The process of alternative financing is streamlined, and the lenders are more accessible than the traditional banks. In addition, alternative lenders provide flexibility on specific loan needs such as annual revenue and credit score. They can also help you change your repayment schedules.
How does alternative financing work?
If any small or medium-sized business requires a specific amount urgently, they can attain it within a few days from the alternate lenders. They provide loans for three to five years in a range of 5000 dollars to 5 million dollars. Documents like bank statements, credit scores, and tax returns are essential for alternative financing.
What are the types of alternative financing?
Alternative financing comes in different types, and you can explore them all and find the one suitable for your business. Below listed are a few common types.
- Structured equity products: Structured equity products are designed for small and medium-sized businesses that want a specific amount of funds to grow. These products are created by the business development companies and are excellent investment options that involve various debt securities or issuance of bonds.
- Direct lending: Direct lending option helps you attain bank-type loans from the lenders. Generally, direct lenders raise a certain amount of money or capital from investors to help fund the borrowers. Although direct lending doesn’t regulate like loans from traditional banks, lenders are known to help clients with commitment and dedication. The direct lending funds show consistent returns and strong yields for investors.
- Venture debts: Venture debts is a type of alternative financing that allows businesses to obtain capital for an opportunity or project. You can ensure valuable capital and considerably fewer long-term costs with regard to equity.
What are the benefits of alternative financing?
Seeking out loans with alternative financing is incredibly beneficial. So, to know more about their advantages, keep reading this article.
- Swift funding: Alternative lending is a quick method of getting a loan. Compared to traditional bank loans, you can ensure quick approval of the application process. You can attain cash in your bank account within 24 hours, allowing you to withdraw the amount for emergencies. If you want to build your business quickly, the alternative financing method is an excellent option.
- Less documentation: Too much paperwork or documentation means a more stringent approval process. But thanks to alternative financing, you don’t have a very stringent process. You can ensure that there is not much paperwork or documentation to submit or fill out. For instance, in case you want a merchant cash advance, the alternative lenders will be interested in only numbers from the past sales rather than property values and account statements.
- Greater flexibility: Many businesses struggle to make a monthly payment on a regular basis. You don’t have to be concerned about longer repayment terms or lower interest rates with alternative financing.
Conclusion: Many alternative lenders in the market can help your business gain funding and grow immensely. Alternative financing has been proven helpful for many businesses since it saves time from a complex approval process.