Since 2008 banks have become more and more restrictive with bank loans. Due to their own greediness in making mortgage loans to those that could not afford it their underwriting guidelines for small business loans have become impossible to get. Roughly 8 out of every 10 applicants for a small business loan are turned down. The requirements are too restrictive, the paper work involved too voluminous, and the speed is way too slow. There are thousands of businesses out there that don’t have the best credit, don’t have the time to email and or drop off 100’s of pages of documents, or that need fast capital in 2-7 days. While banks by far offer the best rates and terms it doesn’t do any small business owner any good when they don’t approve anyone.
What To Expect From Alternative Business Lenders
Alternative business lenders are private “banks” that are taking on an enormous amount of risk. If you think about it, 85% of new businesses fail within 3 years. These are the main segment of their clientele. They are giving small business owners money based only of some bank statements and merchant statements. They do run personal credit on the owner and use that score to determine whether or not they will reduce what they can lend or how long of a term they will give to repay. It is not unusual for a business owner to get funding with credit scores of 500. Business performance is the determining factor as to how much you can get. They look specifically at the last 3-6 months of bank deposits that are revenue related and derive a funding amount on those figures. They can range from 15% of monthly revenue to as much as 200%. Other factors they look at are the number of negative days your bank account shows, number of NSF’s, whether or not you have other business cash advance loans, what your daily balance is, if you end the month in the negative or not, and what industry you are in. They favor those businesses that have a lot of small daily transactions rather than those that have only a few deposits each month regardless of how large they are.
What Options Do Alternative Business Lenders Offer
Alternative business lenders will offer three main financing options. Those are merchant cash advances, unsecured revenue based financing, and factor financing on accounts receivable. While the first two are advances, not loans, based on future receivables, factor funding is an advance on uncollected invoices from your customers. The rates involved will range from 19% to as high as 50%. repayment terms range from as little as 2 months to 18 months for merchant cash advances and revenue based lending. Factor funding can on indefinitely. Again, while this form of financing is more expensive than a traditional bank loan at least you can actually get the capital you need. If time isn’t an issue we do recommend going to your bank first but if you are a small business owner in need of fast capital for growth and expansion and don’t have the best credit then working with alternative business lenders is the way to go.