Alternative business loans are a brilliant option for fast cash and small businesses have the chance to get loans from various non-bank lenders. Yes, these institutions charge higher interest rates when compared to banks, but they are readily available to businesses that don’t qualify for traditional financing. One of the best things about alternative lending is the reverse auction model, in which lenders compete to offer business owners the best terms. This gives business owners better loan options and makes alternative loans more likely to be approved than bank loans.
What Are The Major Benefits of Alternative Loans?
Traditional bank loans typically require a detailed business plan and a credit score, while alternative loans may not require either of these. Alternative lenders may be more willing to lend to businesses with a less-than-perfect credit history and have a wider variety of loan products vis-a-vis traditional banks.
What Are The Crucial Types of Alternative Loans?
Let us take a look at the various popular alternative loan options to see which one is most suitable for your business:
- The first type of alternative loan is a business’s credit line. This is a loan that is based on the credit history of the business owner and not on the assets of the company.
- The second type of alternative loan is an unsecured business loan. This loan does not require any collateral from the business owner.
- The third type of alternative loan is bill factoring which uses the business’s accounts receivables as collateral.
- The fourth type of alternative loan is equipment financing. This is a loan that uses the equipment that the business wants to purchase as collateral.
- The fifth type of alternative loan is an SBA loan. This is a loan that is offered through the Small Business Administration.
- The sixth type of alternative loan is an MCA or Merchant Cash Advance. This is a short-term loan that uses future sales revenue as collateral.
Also Read: SME Loans in Singapore- An Ultimate Guide
What Are The Pros and Cons of Alternative Loans?
Alternative business loans can provide you with the money you need much faster than traditional loans. However, the interest rates on alternative loans are often much higher than traditional ones. The interest rate you will pay varies depending on the type of alternative loan and the lender. Some standard alternative small business loan interest rates are 3.3%–4.8% for a credit line, 4.66%–8.99% for a term loan, and 3%–5% for equipment financing.
Alternative financing can help your business grow when other financing methods fall through or you need the money quickly. If you’re thinking about an alternative loan, carefully weigh the pros and cons. The loan may be a good option if you have a one-time opportunity to grow your business. For example, if you want to buy another company or expensive equipment at a low price.
Alternative business loans can be a great way to get the upfront capital you need for a large project or order. Your client paying you quickly can help you repay the loan. Keep in mind the requirements of each loan when comparing alternative business loans. You’ll know which ones you qualify for and get the best rates on them.
The Takeaways
There are many reasons why alternative loans should be your top pick. For starters, they’re often faster than traditional loans. Alternatively, lenders are more forgiving when it comes to credit scores, so even if you have bad credit, you may still be able to get a loan. What’s more, the application process for alternative loans is usually much more straightforward than for traditional loans.
Finally, thanks to recent technological advancements, alternative lending will only continue to grow and change how businesses get money. So if you’re looking to finance your business, explore all your options, including alternative loans.
MSMEBlog advises MSMEs on how to obtain proper financing and provides information on available funding sources. Find out more about MSME financing at https://www.msmeblog.com/.
