More than 80 percent of small business applications for traditional loans are rejected per year, according to a recent study. For a small business owner, such statistic is enough to send chills up the spine. After all, without the necessary funding they need, their financial solvency is never guaranteed. Fortunately, there are more ways to get funding than the traditional bank loan, one of which is alternative business funding. Here’s a comprehensive guide to alternative business loans and what you should know about them.
What is It?
Alternative business funding also referred to as merchant cash advance and working capital advance, refers to the type of loans that are much easier to get approved of. It has less stringent application requisites, fewer documentations, and overall lower approval limitations. Lenders usually approve or reject an application within less than a day of the request. There are other similar forms of alternative business loans, such as Factor loans, yet the article will limit itself to alternative business funding for the sake of simplicity.
Originally, alternative business loans were structured as one lump-sum payout to the borrower in exchange for a portion of future credit/debit card sales that have been pre-agreed upon by the two parties involved. Today, however, it is used to denote the myriad of small business financing models made available. In addition to the expansion in its definition, alternative business loans are also earmarked by shorter payment periods and payment amounts.
What is the Purpose of Alternative Business Funding?
Companies like Advanced Funds Network usually offer this type of loan to retail companies that do not qualify for traditional loans. Compared to the latter, alternative business loans essentially have higher interest rates than traditional loans. Fortunately, the increase in suppliers of alternative banking loans coupled with the innovations transpiring around the industry has led to a decline in interest rates attached to these financing contracts. Today, you’ll find that rates are more closely correlated to the borrower’s FICO score.
An advantage of alternative business funding is that it has a relatively shorter waiting and processing time. For small business owners, this time, the difference can make or break their company’s growth. The average approval time of an alternative business loan is two hours and cash is usually deposited to the borrower’s account on the same day. From a business owner’s standpoint, this means continued business operations and uninterrupted growth. Not getting the financing they need could lead to irreversible consequences including loss of clients and partners.
Finding an Alternative Business Lender
Looking for an alternative business lender isn’t by any means a walk in the park. Comprehensive research and thorough analysis of each lending option are ideal to get the lowest rates and most advantageous repayment terms. Basically, there are three different repayment methods used by lenders – split withholding, lock box withholding, and ACH withholding. Check to see what repayment structure best fits your company’s cash flow qualities and which method the lender uses.
Although continuous funding from your alternative business lender may be needed in the future, avoid lenders that seemingly force more capital down your throat. Take a step back and look at the amount you are capable of repaying within the agreed upon terms. Don’t take any more debt if you are unable to repay it back on time otherwise, you’ll find yourself getting sucked into interest rate debt.
Aside from taking on more alternative business debt, another seemingly attractive offer to avoid is getting alternative funding to scratch off existing loan debt. When you sign up for a loan, you’ll be called several times by your lender to take on a new loan contract with a lower interest rate to pay off the first one you took out. Paying interest with interest is an unwise business decision that could haunt you in the long run. A company like Advanced Funds Network can help you get the funding you need without shady business dealings and ridiculous interest rates.
Alternative business funding is a nifty financing tool for small business owners that are often rejected by major banks. With proper planning and unshakable discipline, you’ll be able to wield alternative business loans effectively, successfully clearing off debt without taking on more or damaging your business’ reputation in the process.