Alternative Lending Advantages Over Traditional Loans
Alternative lending is a continually growing industry that has helped countless businesses launch or expan. This article goes over several reasons why alternative lending, rather than traditional bank lending, has become so attractive to entrepreneurs.
Per Forbes.com, one attractive aspect of alternative lending is how quickly loan agreements can come to fruition. Some applications can take as little as 30 minutes. That sounds fast on its own, but it is especially speedy when compared to the “25 hours that small businesses spend on filling out paperwork at an average of three conventional banks before securing some form of credit,” per a study by the Federal Reserve Bank of New York. Additionally, the traditional-lending approval process can take weeks, while with alternative lending, borrowers may receive their funds in just days.
Alternative lending comes in a wide variety of forms, adding to its appeal. For example, if a business has trouble securing a traditional loan but needs funds, the business can instead use an accounts receivable program. In such an arrangement, the business sells their outstanding receivables—that is, money clients owe—at a discount. In return, the business receives money almost immediately and does not have to worry about waiting for payment to trickle in from late accounts.
That is just one solution offered by alternative lending organizations. Others include lines of credit, retirement-package funding, financing for real estate and equipment, and more.
Less Focus on Credit History
Traditional lenders place a heavy emphasis on credit history, which can ding new businesses or entrepreneurs with less-than-stellar financial histories. Alternative lenders do take credit history into account; however, they also assess businesses on cash flow and general performance. This means that a young, upward-trending business may have an easier time obtaining alternative lending than a traditional loan.
For more information on financing and other business topics, take a look at Approved Business Lending’s other blog posts.