Alternative lending can help small and other-sized businesses to increase their revenues in a way that borrowing through more mainstream lenders may not be able to do so. Although alternative lenders often get a bad rap for the interest rates they charge or the fact that they are not subject to the same regulations as mainstream lenders, alternative lenders very often offer a streamlined, less document intensive underwriting process when compared with more traditional lenders like banks. This can enable business loan borrowers to obtain the proceeds of their loans more quickly, enabling them to use those funds to expand their business, fund the business’s day to day operations, or simply use these funds as a source of working capital to draw upon as the need may arise. Lenders such as Best Offer Capital can therefore be an attractive source of financing for any size business, but is particularly an appropriate choice for small businesses.
Alternative Lenders Offer More Simplified Underwriting Processes Which Can Result in Obtaining Loan Approval and Receipt of Loan Proceeds More Quickly
Alternative lenders typically are able to fund a loan much quicker than mainstream lenders. This allows business loan applicants quicker access to the loan proceeds to either expand their business, fund their daily operations, or use those proceeds for whatever purpose the business needs additional capital. Alternative lenders’ underwriting processes are typically much quicker than mainstream financial institutions, which means loan applicants typically receive approval or denial of their loan application in short order, sometimes as quickly as within 24 hours. Due to the relative youth of the alternative loan industry and of many of the marketplace participants in this space, many alternative lenders also leverage technology to a degree that traditional banks and other mainstream financial institutions may not be able to do. This enables them to make decisions on a business borrower’s loan application more quickly than a traditional lender may be able to do with legacy procedures that depend more heavily on human review.
Alternative Lenders May Not Require the Same Number or As Restrictive of Loan Covenants as a Mainstream Lender Typically Would for a Business Loan
Most loans are made pursuant to a written credit agreement that spells out the terms of the business loan. However, form credit agreements used by mainstream lenders typically are also chock full of loan covenants, or mandatory financial ratios, that a borrower must meet in order to stay in compliance with the terms of his or her loan. It is natural in the course of a small business’s development for there to be ebbs and flows in the small business’s online invoicing balance sheet or its income. This can cause the small business to violate the restrictive covenants in the credit agreement or other loan document through no fault of the borrower’s own. Instead, a business owner who is operating what is a seasonal or more cyclical business whose cashflow or sales are uneven is potentially in danger of violating the covenants in his or her loan credit agreement based solely on the industry he or she is in.
Alternative lending, particularly for larger businesses, typically does not come with as many or as restrictive of loan covenants as a loan from a mainstream lender. Instead, the credit agreements and other loan documents used by alternative lenders often can be more simple and streamlined than the sometimes massive credit agreements utilized by mainstream lenders. This frees up the business borrowing from an alternative lender to concentrate on running their business rather than constantly worrying if cyclical factors or some other factor outside the business owner’s control will cause him or her to violate the financial covenants in his or her loan documents. Borrowing from an alternative lender would thus enable the business owner to spend time focusing on expanding their revenues or meeting with potential customers rather than worrying about maintaining compliance with loan document-required financial ratios that may or may not be realistic for that business or that industry.
● Due to their aggressive use of technology and their sometimes less bureaucratic underwriting processes, alternative lenders may be able to approve a borrower more quickly than a mainstream lender can. This allows the borrower quicker access to the loan proceeds, enabling him or her to utilize those funds to expand his or her business, fund the business’s daily operations, or whatever purpose his or her business needs the loan he or she has applied for.
● Alternative lenders may offer fewer (and less restrictive) covenants in their credit agreements and other loan documents. This may in turn free a small business borrower to concentrate on expanding their business, pursuing sales lead or some other business-related function rather than focusing on staying in compliance with loan document-required financial ratios or covenants.
February 13, 2017
February 13, 2017
Stories by Hicks Crawford