When Banks Let You Down, Consider an Alternative Business Funding Loan

Small business owners, especially when the business is first starting out, often find it necessary to take out a small business loan. A Small Business Credit Survey conducted in 2019 revealed that 70% of small employer firms have outstanding debt. The range of outstanding debt varies but the average small business bank loan amount is $633,000.

So, if you are an entrepreneur who is coming to the conclusion that you need to take out a small business line of credit you are certainly not alone. Unfortunately, when it comes to working with a traditional bank, although the amount is usually higher, the approval process is much stricter. For businesses that are in desperate need of a small business loan, being turned down by the bank can be devastating.

Despite this, due to recent economic downturns, the banks’ decline rates for small business applications are about 80%.

Fortunately, the answer comes with the many different options that encompass alternative business funding. Here is a quick guide to explain the basics of what alternative business funding is and specifics about where you can go to secure a small business loan. 

What is Alternative Business Funding? 

Alternative business funding is a new and much more dynamic way to procure a loan or a small business line of credit. This type of funding is defined as any lending that takes place outside the confines of traditional or conventional banking.

The good news: Alternative business funding lenders are more likely to lend smaller amounts of money so that you are not left with astronomical debt and strict payback regulations. 

Something to think about: Since alternative business funding is such a new way of gaining capital for your business, it has yet to be regulated. Therefore, it is extremely important to read the fine print and know exactly what you are agreeing to before signing up for alternative funding. 

*Note: This is a reminder of a practice that should be applied to every financial endeavor, traditional or alternative. Therefore, the fact that it is not regulated is not a reason to shy away from this otherwise exceptional form of potentially business-saving form of lending.

Where Can You Find Alternative Business Funding? 

There are three types of alternative business funding lenders: Direct private lenders, marketplace lenders, and crowdfunding platforms. Each option has its own specifications. It is important to understand each to figure out which type of alternative funding is best for your small business loan or line of credit. 

What Are the Pros and Cons of Alternative Business Funding? 

Alternative business funding is largely a business-by-business option. Considering the different types of funding and the varying options that are available within each type, it makes sense that some businesses’ preferences can be drastically different than others. Although, when it comes to finding an alternative route to acquiring a small business line of credit or a small business loan, there are a few consistent pros and cons that reach across all of the alternative business funding options.

Pros of Alternative Business Funding Loans:

Regardless of the type of alternative loan you find is best for your business, there are always going to be a few solid pros to choosing alternative funding instead of traditional funding:

Simple and Often Ideal Application Process: The application process for most alternative business funding opportunities are going to be quick, simple, and easy. Often, the loan application process and even the loan terms will be beneficial to both the buyer and the lender. 

Fast and Flexible: Alternative business funding has a fast approval process and offers flexible parameters that many small businesses can meet. 

Cons of Alternative Loans:

Even though alternative loans may seem ideal, there are still a few cons that you want to consider before entering into an alternative loan agreement:

High-Interest Rates: Since alternative loan methods are not backed by large financial entities, they are taking a much bigger risk than traditional loans. Therefore, the interest rates tend to be higher, to help make the investor’s money back and to cover any losses that they do incur. 

Risk of Falling into a Cycle of Borrowing: Taking out small loans, which some businesses can get a few of, might propel you into a cycle of borrowing. This is where you take out a loan and then take out another loan to cover it and eventually, you do not have enough money coming in to cover your debt. This will inevitably put you in a worse financial state than you were in before. However,  if you are aware of this and you borrow smart, you should have no problem with this.

In summation, whether you are thinking about a specific alternative business funding loan, or you are still weighing your options, South Florida Funding Group can help! 

Contact us today!