Business loans – The main differences between traditional and alternative lenders
At one time or another, new businesspeople who are just starting out or experienced entrepreneurs who have been running a business for a long time will need a small business loan. Even though these businesses may be referred to as small, many of them may have huge operating costs.
Why traditional lenders may not always be the best option
When in need of a business loan, most business owners’ first port of call is the local bank. However, obtaining business loans from traditional lenders such as these is at times disadvantageous because they require you to satisfy a plethora of requirements before deciding whether or not to give you the loan.
This overly extended process usually involves going through your financial reports, tax returns, financial statements, credit history, etc. Gathering all the required documents and completing the necessary paperwork can be needlessly time-consuming. In the modern fast-paced business environment, you can’t afford to waste previous time on this lengthy exercise.
Additionally, if like many small businesses yours is operating on very small profit margins, spending all that time that would be better invested in finalizing sales or working on a marketing campaign means your business is missing out on opportunities.
What’s more, the exceedingly long application process for traditional bank loans does not necessarily mean that your loan will be approved. Approval rates for small business loans from traditional lenders has been reported to be considerably lower than those from alternative lenders, such as libertylending.com.
Why alternative lenders are becoming increasingly preferable
To begin with, the application process for alternative business loans is quick and efficient, with a majority of loans being approved within a day. You get to save much needed time because the paperwork is minimal.
When you apply for a business loan from a bank, you need to specify the exact purpose of the loan. To determine whether or not you are qualified to receive the loan, the bank assesses the feasibility of your plan for using the money, your ability to make loan payments, and your business’ general health.
This means that, even if you have the ability to make loan payments and your business is in generally good health, the bank may still reject your application if it does not approve of your plans of spending the money.
This is not the case with alternative lenders, who let you use the funds for a purpose of your choosing, be it clearing outstanding taxes, running an innovative marketing campaign, or purchasing new business equipment. With alternative financiers, you can easily access much needed funds when you really need them.
Alternative business loans have other benefits. The collateral requirements set by alternative lenders are not as strict as those set by traditional lenders. The term lengths for alternative business loans are shorter. The repayment plans are flexible, so you can negotiate for a payment plan that fits well into your business’ cash flow.
It therefore stands to reason that alternative loans are in a lot of cases the best source of short-term financing for small businesses.