Small Business Turns To The Alternative Business Lender
Often times small business owners will turn to an alternative business lender to secure much needed capital for their business due to traditional bank’s inability to provide capital. Banks are confined to federal regulations and certain risk tolerances with regard to financing small business. In addition, they utilize outdated underwriting methods for today’s borrower. Banks use FICO scores as their primary predictor for credit worthiness. They put exponentially more weight on the credit score rather than on business performance. A business owner that had a hardship in the past that affected his/her credit score suffers when trying to secure capital even if their business is over performing.
Why Using An Alternative Business Lender Makes Sense
Alternative business lenders utilize big data and heavily leverage technology to utilize thousands of alternative data points to predict the credit worthiness of an applicant. While FICO scores do play a role in their underwriting score card, a low FICO has minimal affect on the overall lending decision. It may help determine the cost of capital or the term of a loan but it will not automatically decline an applicant if it is say a FICO score of only 550.
An alternative business lender has underwriters who have developed complex algorithms that can provide lending decisions within minutes. Banks on the other hand may take weeks to give a thumbs up or thumbs down. Alternative business lenders provide fast and efficient processes so that they can approve and fund a small business owner within 24 hrs of receiving their application. Because of all the technological advances over the past 15 years, what once took months to provide now takes minutes. Why are traditional banks so far behind the curve? Perhaps if they adopt the same methodology they too can provide fast capital for small business and help drive down the cost of capital through enhanced competition.
In a recent Forbes article it was stated that only 22% of all small businesses applying for a loan with a bank were approved while alternative business lenders approved over 60%. Banks also shy away from lower dollar loans. The average alternative business loan is about $45000. Banks cannot make a loan of that amount and be profitable. The cost to fund a $10,000 loan and a $1,000,000 loan are the same for a bank.
The alternative business lender utilizes technology which significantly decreases underwriting costs and allows them to quickly and efficiently deliver capital. The cost of an alternative business loan is higher than a traditional loan as any business owner who cannot get a bank loan is considered high risk. Lots of small business owners have judgments or tax liens yet can still secure capital through an alternative business lender. So, a small business owner will pay more for an alternative business loan. They are paying for the speed, convenience, and their heightened risk profile.
Give An Alternative Business Lender A Chance
Next time you’re in need of fast capital or do not want to go through the hassle of providing business plans, tax returns, collateral, financials, etc…try an alternative business funding company. Experience the speed and the lack of hurdles to get working capital. They make it a friction-less experience.