6 Qualities to Look For in an Alternative Business Lender
The options for small businesses looking for outside funding are growing at an exponential rate, making it increasingly easier for the small business owner to find the financing they need. Alternative small business lending is a rapidly growing new industry, providing a wealth of opportunities for small business to keep their heads above water. Yet being a new industry, you should be cautious about who you choose to help keep you afloat.
Why Alternative Lending Instead of a Traditional Bank
There are a number of factors that have made it very difficult for small businesses to get working capital and other types of loans. For one, they simply don’t have the kind of collateral that many banks are now requiring to back up business loans. They also don’t always have the luxury of time to wait for approval while the bank lender demands a countless number of documents before even looking through the application.
Then there is the issue of credit ratings. Banks are still wary about extending loans to anyone who does not have a stellar credit history dating back years. This requirement is very difficult for most business owners to meet, causing them to need to look elsewhere to help solve their business financing problems. It takes years to repair a bad credit history, and there are still business owners who are recovering from the recent financial collapse. For them, alternative lenders provide a way to continue building their business, despite any blemishes on their credit report.
What to Look for With an Alternative Business Lender
Quick and easy is not the only thing to look for when searching for an alternative business lender. Although that does help, you also want an alternative business lender that:
- Understands Your Specific Industry Needs – Traditional bank loans are of the cookie cutter variety, where one size is meant to fit any business structure. With alternative lenders they should be eager to help you to find a loan product that is designed for your industry. For example, if you are a large manufacturer who uses expensive machinery, a good alternative business lender will be able to show you how using that machinery as collateral could help you to secure a business loan with better terms than other products. The lender you choose should be willing to work with you, and help in finding the loan product that will provide your business with the most benefits.
- Provides Easy to Understand Terms – Loan terms are not always cut and dry, and if you don’t understand what the repayment requirements are, you could end up paying a lot more for a loan than it is worth. Worse, you may find yourself in a position where repaying your loan is hurting your business. Find a company that is not afraid to show you the same type of details you would find in a truth in lending document. This outlines all of the costs to you, as well as the total amount you will have paid for the loan once it has been paid back in full. The numbers may scare you at first, but at least you will know what exactly you are getting you and your business into.
- Gives You Multiple Loan Options – Not every business has the same needs, and there are different types of loans available to suit different business structures and goals. An alternative lender of merit should be able to provide you with choices, and details for which ones are appropriate for different circumstances. For example, while an online business with a high number of credit sales could benefit from a merchant cash advance, an alternative lender should be able to offer a substitute to the small coffee shop owner whose daily sales are almost entirely made in cash. If you deal with an alternative lender who is only offering one or two types of business financing solutions, you could end up with a loan that doesn’t help you to move your company forward.
- Has Terms You Can Work With – Most importantly, you want to find an alternative business lender who provides you with loan terms that will not harm your business. Going back to the merchant cash advance for example, if your business is making almost 100% of its sales through credit, you may not be able to afford to pay back the loan using the majority of that money. Otherwise, you will soon find that you are once again lacking in working capital to keep your business running. Terms should be flexible to meet your specific business structure and needs if an alternative lender is going to be of value to you.
- Has a Speedy Approval Process – Small business owners typically seek a loan because they need cash today, not a month from now. Look at the type of documentation needed and average wait time it takes before you have the cash in hand. One of the reasons why an alternative business loan costs more than a bank loan is because they are expected to be quick to attain. If the lender is not able to provide you with that convenience you are not getting what you are paying for.
- Already has Built a Good Reputation – You are within your rights to check into the back ground of the lender to see if there are any complaints lodged against them or questions about their integrity. This type of business is popping up all over the place, and each new company is not always going to be a reputable one. Do your homework first in order to ensure that you are dealing with a lending company of good standing.
Take great care when choosing the alternative lender that is going to help keep you from drowning in business debt. With the right products and support, you can take great advantage of these types of loans. They can help build your business and take it to the next level of profitability.