There are a lot of reasons that you might need funding in your business or your personal life. Sometimes, you want to go outside of a traditional bank for any number of reasons.
Small business owners in the United States also have a difficult time accessing financing historically, which is why alternative lending can provide solutions for them.
If you’re a small business owner turned down by a credit union or bank, there are alternative lending and loan options that might provide fast, flexible funding.
Online banking has come a long way. From getting crypto loans to online banks with no brick-and-mortar operations, the options are expansive if you know where to look.
The following are some things to know about alternative loan options.
Understanding Alternative Lending
The term alternative lending is broad, and it refers to any loans, and in this particular scenario, business loans, that are available outside of traditional banks.
Alternative lenders are usually online-based, and they’re private companies that operate much as a bank would.
These lenders can offer products like term loans, business lines of credit, personal loans, and more.
Bank loans are difficult to qualify for, and the application processes are long. Plus, there’s often a long time between approval and funding.
While it can sound great, alternative loan products are almost always going to have higher interest rates to contrast with the more flexible requirements.
Below, we talk about some of the options available if you’re looking for an alternative financing solution outside of a traditional bank.
Microlending
Microloans are small business loans, usually for amounts as much as $50,000. Microloans have short repayment terms, and their interest rates can be comparatively low or high, depending on the situation.
For businesses that have a hard time accessing credit, don’t need a larger loan, or are startups, microloans can be a good option.
The way microlending works, in general, is similar to traditional term loans.
The primary difference is that the loan amount is usually smaller. The Small Business Administration and the U.S. Department of Agriculture offer microloans. SBA microloans are funded through community-based and nonprofit organizations, and they’re often geared toward low-income veterans, women, and minority entrepreneurs.
Online lenders, peer-to-peer lenders, and alternative lenders also offer microloans.
Angel Investors
Angel investors come in and offer funding to a business at an early stage in exchange for an ownership stake. This is different from other types of financing because you’re giving someone an ownership interest in your company.
Peer-to-Peer Lending
Peer-to-peer lending is available in personal finance and also for business financing.
Also called P2P lending, the idea is that the lender will underwrite a borrower, but they don’t directly fund loans. Rather, the lending platform serves as an intermediary between a borrower and an individual or institutional investor.
You can borrow without going through a bank, and there’s typically a high degree of flexibility as far as what you can spend the funds on.
If you decide to apply for a P2P loan, you register and create an account with the lending platform. Then, the platform or marketplace goes over your credit and the financials of your business, determining how creditworthy you are.
The platform will give you a credit rating, and this will determine what you qualify for and your potential interest rate. You then apply for loans through the platform based on what you need and how you’re going to use the funding.
An investor will go over your loan request and your credit to decide if they want to fund your loan and, if so, how much they’ll fund.
P2P loans usually don’t require collateral, although crypto loans are a growing part of this lending approach.
With a crypto loan, borrowers can get funding that they borrow against their crypto assets. You can take your loan in fiat currency or in digital assets. You have a certain amount of time to repay your loan, in installments or in full. If you default on a crypto loan, the lender can cash the assets held as collateral to cover what you owe.
Crypto loans let you access money without selling your digital assets, and they’re processed almost instantaneously. Crypto platforms don’t do a credit check either, so the limited barriers hold appeal for some people.
OnDeck
OnDeck is a specific platform you might be interested in that offers lines of credit and short-term business loans up to $500,000. The terms go up to 36 months and can be as short as three months.
You need to have been in business for at least a year and have a minimum annual revenue of $100,000 to qualify.
OnDeck is considered an alternative lender not only because it’s an online platform but also because of the fast, simple application process that can mean you get funding in as little as a day.
Fundbox
Another specific platform you might explore is Fundbox.
Fundbox is good if you’re a business or startup with average credit. Invoice financing and lines of credit are available, both with very flexible requirements. You only need a minimum annual revenue of $25,000 and a minimum credit score of 500, with at least three months of being in business.
The application process is incredibly simple, and you can connect your business accounts directly so that your eligibility can be evaluated. Thanks to this, you might receive funding in just a day.
Merchant Cash Advances
Finally, another general category of alternative lending for businesses is a merchant cash advance. Under this model, you receive an advance from a financing company. You then pay it back with a percentage of daily credit card transactions, plus a lender fee.
This is a good option if your company does most of its business through credit transactions. These are very expensive financing options, though, so you need to be mindful of that before jumping in.
Before deciding on alternative or traditional business financing, know all of your available options, so you make a good decision in both the short- and long-term.
Ella Marcotte
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