Alternative Lending: A Viable Solution for Small Business Owners

Michael Oldham
Jun 24
4 min read

Updated: Jul 11

We live in a state with a booming population. This creates more opportunities for small business owners looking to sustain or grow their revenue. However, most business owners don’t know that there are alternative lenders that could help them achieve their financial goals. As a result, they often get frustrated and frequently fail within their first five years in business.

When I come in contact with some of these business owners, the responses I usually get are either "I'm good," "Not Interested," or "If I need money, I can go to my bank." It sounds easier said than done. Trust me—the majority of business owners (especially the new ones) find it a major challenge. There are answers to these challenges, and we'll explore them in this blog.

Overview of the Challenges Small Businesses Face in Securing Traditional Loans

Starting a business is no small feat. With the economy changing and competition increasing, small business owners face various challenges when securing traditional loans. Many face rejection due to strict eligibility requirements that don’t always take unique circumstances into account. Issues like insufficient credit history, lack of collateral, or a poor personal credit score can lead to disillusionment. Understanding these challenges is the first step toward finding an effective solution.

Understanding Alternative Lending

Before you pass judgment on alternative lending, let's explore what it is all about and why you should consider it as an alternative to traditional lenders.

What is Alternative Lending?

Alternative lending, often referred to as online or fintech lending, involves obtaining a business loan from a non-bank lender. These lenders don’t take deposits and operate online, using technology-first underwriting practices to expedite and expand credit access.

Alternative lending has a market value of $284.5 billion and is expected to grow significantly, reaching $2,541.8 million by 2030. When traditional banks decline your loan application, alternative lenders may approve your need for working capital with less stringent underwriting guidelines.

Reasons to Consider Alternative Lending

There are several reasons to consider alternative lending, especially if your bank has declined your application due to insufficient collateral, low credit scores, or lack of investment.

Accessibility: Easier qualification requirements compared to traditional loans, including an easy application process with no need for a personal guarantee.
Manageable Borrowing: Obtain a manageable amount of money without strapping your cash flow.
Speed of Funding: Enjoy faster processing and approval times, often within a few days, which is beneficial for urgent financial needs.
Flexibility of Terms: Benefit from varied repayment options tailored to your business needs, which can be daily, weekly, or monthly.
Future Opportunities: Prepare for future bank funding with more attractive rates and terms (including Term Loans and SBA Loans).

Types of Alternative Lending Options

Understanding the various types of alternative lending options can help you find the right fit for your needs. Here are some popular alternatives:

Peer-to-Peer Lending: This connects borrowers directly with individual investors, often at competitive rates.
Online Lenders: Overview of popular online lending platforms and what they offer, including SBA loans.
Crowdfunding: Explore how crowdfunding works and basic platforms to consider.
Merchant Cash Advances: This funding option provides upfront capital based on your future sales—ideal for businesses that cannot secure conventional loans.
Invoice Financing: Gain access to funds based on outstanding invoices.

Evaluating Alternative Lenders

When considering alternative lenders, it’s crucial to evaluate them diligently. Here’s how:

Research Lender Reputation: Look for reviews and testimonials from other small business owners.
Understand Fees and Interest Rates: Scrutinize the total cost of borrowing, including hidden fees.
Seek Transparency and Good Customer Service: Evaluate how open and helpful the lender is during the application process.

Preparing Your Business for Alternative and/or Traditional Lending

Being well-prepared can increase your chances of securing funding. Here are some steps to consider:

Improve Your Credit Score

Focus on strengthening your creditworthiness before applying:

Monitor your credit report regularly to protect and improve your score.
Pay your bills on time to maintain a good credit history.
Manage your debt-to-credit ratio responsibly.
Increase your credit limits strategically.
Keep personal and business finances separate.
Establish trade references to boost your credit profile.
Dispute any inaccuracies as soon as possible.

Gather Necessary Documentation

Preparing essential documents will make the application process smoother. The more current and relevant documentation you provide, the quicker the process will be.

Develop a Solid Business Plan

Having a clear business strategy is vital when presenting to potential lenders. While many alternative lenders do not require a business plan, having one will help clarify your vision and goals.

Common Misconceptions About Alternative Lending

Several misconceptions exist regarding alternative lending:

Risk Perceptions: While there are risks associated with alternative lending, many options offer manageable risk levels.
Cost Concerns: Alternative lending is not always more expensive. Many lenders provide competitive rates.
Accessibility: Alternative lending is not just for businesses that can't secure traditional loans. You might qualify even with good credit.

Conclusion: Finding Your Funding Solution

Overcoming the many challenges small businesses often face can lead to better financial decisions. Alternative lending options can help address those funding challenges when traditional routes fail.

Obtaining the right kind of funding is crucial for your business growth. Applying for a loan is not as easy as it may seem, particularly with SBA loans.

If you've been in business for at least three years and have a minimum credit score of 660 or higher, you may be eligible for an SBA 7(a) loan ranging from $25,000 to $350,000 through Smart Biz Loans. The best part? You won’t need to provide collateral or a business plan.

Ultimately, exploring alternative lenders like Smart Biz Loans can streamline the funding process. You could secure funds within 7 to 14 business days without dealing with time-consuming paperwork at a local bank.

If you're still exploring options, feel free to check our website, www.fastbizcashloans.com, for more funding alternatives, regardless of credit.