With bank loans becoming increasingly difficult to obtain, alternative lending, especially online, is now a big industry by itself. Also called fintech, alternative online lenders are filling up an important vacuum, offering cash or liquidity in the post-recession world to small businesses and keeping them in the game.
Alternative funding becomes important for small ventures when conventional bank loans are too difficult to obtain or take longer to process. Working capital requirements, emergencies, and needs for marketing, expanding or buying inventory can strike anytime, and alternative lenders ensure that obtaining finance is no hurdle.
There are several types of alternative small business loans & financing available today, which use a hybrid approach. The lender may engage providing working capital, give a cash advance, or rely on finance invoices. The offer can be a loan, a small advance or even an entire line of credit.
Typically, alternative lender may offer sums ranging from $50K to $2 million or more. The approval window is very short, and can be just 2-3 business days. In case of lines of credit, the debt may need to be repaid in several months up to a year. Some lenders don’t charge interest, but a fixed fee per month. Some alternative lenders may ask for proof that a business is running for several months, or that they have a credit score above a fixed limit.
Given that small businesses may need money at any point during operations, having alternative options to finance is a boon. The options range from working capital to raising money based on invoices, or getting a simple term loan.
Alternative lenders are meant to serve small businesses who don’t meet the criteria set by established banks. Their criteria are thus easy to meet, processing time is just a few days, and online methods make it an easy procedure. The interest rates, however, are higher than conventional bank rates.