The struggle for small businesses is never ending. At no time have small business owners not needed capital infusions to either solve a business problem or help them grow. Friends and family money can only go so far. While very helpful, it cannot help a small business scale to where it wants to go.
Turning to banks for a traditional loan is a good first step and any business should always take that step as they will receive the best terms. Unfortunately, banks are extremely restrictive and roughly 85% of small businesses that apply for bank funding are declined. Reasons for declines range from time in business, credit, the amount of capital needed, industry type, or when you need it by. Banks can keep you waiting a rather long time and require a lot of documentation. It can take weeks or even a month to find out whether or not you are approved and still weeks after that to receive funding if you were approved. If you’re in need of fast capital then this may not be the right choice for a small business unless of course you have a line of credit with you bank already set up.
When A Small Business Should Use An Alternative Loan
So, when should a small business seek an alternative loan? The answer is, whenever they need capital and cannot secure it from a bank, friends, or family. Alternative loans are short term and expensive and therefore should only be considered as a last resort (especially if speed of funding isn’t a factor). If you are a retailer and knowingly have an opportunity to buy an inventory item at a largely reduced price that you know from experience can sell quickly but you must purchase it within a week or so….that is a great reason to use an alternative loan like an unsecured revenue based loan. In this instance, you will not affect your cash flow, you can buy the inventory and resell it an an ROI that far exceeds the cost of the money. What if you have a tax bill that is due? An alternative loan can get this paid off in one shot. Need a new location quickly? An alternative loan is a great option as well due to the speed of the money. That is what a small business owner needs to understand. He/she is paying for the ease of applying, much reduced document requirements, and the speed of the funding process. You will have a lending decision within 24 hours. You will receive your funding, if approved, in as little as a few days to 7 days. That is extremely fast. The rates are high for this “service.” Expect to pay a flat 15% to 48% for the money over terms as little as 3 months up to 18 months (6 months being the average).
Hopefully this gives some insight into the alternative lending arena and how it can help the small business owner.