What You Need to Know About Alternative Business Funding

by | Feb 13, 2020 | Alternative Business Financing

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What is Alternative Business Funding?

Alternative business funding or loans is a type of business funding not provided by a bank.


Why Alternative Business Funding?

If you see the news headlines it appears that banks are providing much more small business loans compared to the last several years.  But if you read deeper into this you’ll see that the Small Business Administration (SBA) defines a small business as 500 employees or less an under $7.5 million in revenue.  That accounts for almost 99% of all companies in the United States.

Alternative business lenders are just that an alternative to your traditional bank.  Alternative Funding came into existence to help what you and I would consider a small business, get funding to support their business growth.

When it comes to securing capital for your business, regardless of the reason, often times a bank will decline you for a loan. A traditional bank declines over 70% of all applications looking for financing.  This could be due the following reasons:

  • Less than perfect credit score
  • Not enough time in business, typically a traditional bank wants to see at least 2 years in business
  • Annual revenue is too low
  • You may not have enough collateral

Of those businesses that are approved for funding, the average loan amount is $350,000 from a traditional bank.

What about the small businesses that need only $5,000, $10,000, $30,000 or $75,000?

Traditional banks will turn away small business owners in need of this small amount of capital. In business less than 2 years….you can just about forget trying to get a loan from a bank. FICO under 650…good luck!

This is why the alternative business funding sector of private lenders has exploded in the last several years and continues to grow.  In fact, alternative business financing has quickly become the fastest growing sector of business financing in the country.


Speed of Alternative Business Financing

Alternative business lenders have been providing capital to businesses for a while now. These lenders have been filling the void and providing much needed capital to those business owners who have been declined by a bank.

Strong analytics, data mining, technology, and leveraging big data has allowed alternative lending companies to provide financing extremely fast. A lending decision can be provided in just 24 hours. No way your bank could do that.

Required documentation is minimal. A few months of our most recent business bank statements and an application is all it will take for an approval (or a decline) within 24 hours. With this information in hand lenders can underwrite your approval or denial in 24 hours or less.

Making the borrowing process fast and friction-less has catapulted this industry to be viewed as a real viable option to get business working capital.


Making the Most of Your Assets

There are other types of alternative business financing. These are factoring, which has been around the longest, and asset based lending. Both tend to be lower rates and longer terms.

Factoring is a prepayment on your accounts receivable up to 70-90% the value. At which point your client pays the lender and repay themselves plus 3-5% fee. This type of financing is ideal when you do a larger job with a client that needs 30-90 days to pay, then you would use a factor to help you with cash flow.

Asset based loans are collateralized with equipment, real estate, inventory, etc…. something tangible that has value to others.


Alternative Business Funding Expectations

The process of applying and receiving business capital through this process is hassle free and fast.

With that you should understand there is a price to pay. In most cases, a traditional bank loan may be able to provide the least expensive capital. If declined, you have this alternative business funding outlet as an option.

Due to the high-risk nature, for the alternative lender, associated with this funding process the costs of capital tend to be higher. Expect to pay rates as between 15% and 45% repaid over 3-18 months for a working capital advance.  However, there are other funding options available with lower rates and longer terms.

Funding is Available for You

Regardless of what type of alternative business financing you use, the point is that there is capital available to you if your bank turns you down for a loan.

Small Business Funding is an alternative lender that can provide your company with financing.  We also have relationships with other top alternative lenders in the country. We work with you to find the best suited financing package to meet your needs.

Whether it’s for an expansion, maintenance to equipment, purchasing new equipment, new hires, buying an additional franchise, or for working capital small business funding will secure the alternative business financing you need.

To see how much alternative business financing you can be approved for click here or call direct at 1-800-742-2995