4 Advantages of Alternative Financing Over Traditional Business Loans

Getting the financing you need for your business can certainly be a journey. Businesses must gather documents, find the right lender, and get approved for the right amount that will help meet the business’s needs. Add the fact that there are various financing options available, and you can easily feel like you’re swimming in a pool of uncertainty.

If you’re a business owner, you’ve likely considered whether you should go with a traditional business loan or alternative financing. Traditional business loans have long been the staple for many companies in need of funds. But the reality is, traditional loans aren’t the only option and aren’t always the best option either.

Alternative financing is quickly becoming a more favorable financing option for businesses of all kinds. If you’re interested in financing for your business, read on to learn the common problems with traditional business loans, what alternative financing is, and the advantages of choosing alternative financing over traditional business loans.

Common Problems with Traditional Business Loans

While traditional bank financing has been the standard for a while, it isn’t as easy to get approved for a bank loan. Bank loans are difficult to qualify for, especially if you have a smaller business. This is because most banks prefer to finance larger loans since they are able to make more money off of them.

But smaller companies may not need such large financial banking or cannot afford a large loan. However, if the company isn’t able to get their hands on the funds they need, they’ll likely go in a circle trying to get approved by another bank or attempt to self-fund. This can be discouraging and ultimately impact the long-term success of the business.

Another issue with traditional business loans is that it can be difficult to obtain a loan if your business is new. In fact, some banks require that you be in business for at least 2 years. Some banks will additionally require you to have an established credit history.

Traditional banks also come with a lengthy process most of the time. For businesses, this can be a big deal especially if the demands of the business don’t allow you to wait. Along with this, some banks will require collateral or a large down-payment in an amount that is not necessarily feasible for the company, especially in the cases of a new business.

Ultimately, all of these combined issues can be overwhelming for business owners who need to meet the demands of their company. But alternative financing offers a better way for companies to operate more efficiently.

Understanding Alternative Financing

Alternative business financing is a great option when traditional financing doesn’t work. But businesses may also find that they prefer alternative financing due to the vast benefits that help support the needs of business owners.

Alternative financing is a type of lending that occurs outside the conventional lending institution. In general, alternative financing tends to be more flexible than traditional bank loans and has a faster turnaround time. There are many types of alternative financing avenues available. Therefore, businesses can confidently find a financing solution that meets their needs.

What’s an alternative lender?

An alternative lender is an organization that provides alternative loans to businesses. It’s important to note that ‘alternative lender’ is an umbrella term for several types of alternative lending models. These models include:

  • Direct private lenders
  • Marketplace lenders
  • Crowdfunding platforms

What types of alternative lending are available for my business?

If you’re considering an alternative loan for your business, it’s important to explore your financing options to see which loan is the best for you. The good news is, the alternative lending space is innovative, enabling businesses to find the kind of loan they need no matter how small or large their company is. Here are 3 common types of lending available.

Lines of Credit:

This is a fixed amount of money that a lender gives to the borrower. With a line of credit, a business is able to draw from it to make purchases up until they’ve reached their limit and will only need to pay interest.

Short Term Loans:

These types of loans are scheduled to be paid back in a year or less. These loans are generally not offered by a traditional bank but are a common option for alternative lenders.

Installment Loans:

These loans can provide a lump sum of money to businesses, which is repaid to the lender at regular intervals.

4 Advantages of Alternative Financing Over Traditional Business Loans

Alternative loans are an excellent option for businesses no matter what kind of business you have. Compared to a traditional business loan, alternative business financing can provide better financing solutions, offer more flexibility, and give you the money you need in a timely manner.

Here are 4 advantages of choosing alternative financing for your business.

Alternative Loans Process More Quickly

One of the greatest benefits of choosing an alternative loan over a traditional business loan is the amount of time it takes from filling out the application to receiving the money in your account.

Keeping up with business demands is crucial. Unfortunately, businesses don’t have the time to wait to get the money they need to continue running their business.

Businesses should be able to quickly get access to funds the moment they have a need. Long waiting periods don’t just add stress to the situation but can actually negatively impact the business. This is why alternative loans are becoming a more preferred financing solution for companies. With an alternative loan, you can expect to experience a quicker approval period. In fact, here at MobyCap, we are able to get the funds you need in your account as fast as one day in many cases.

Ability to Work with Industries that Some Banks Won’t

When you think of obtaining financing for your business, you’ve probably created a checklist of things you need to increase your approval odds. Things like your business plan, business credit report, and financial statements are usually the first things to come to mind.

But what many businesses don’t realize is that even with all of your documentation in order, a traditional bank will not work with businesses in certain industries. For instance, if you have a cannabis business, a bank will likely avoid working with you due to the Federal Deposit Insurance Corporation (FDIC). Generally, the FDIC will not insure a bank that takes on existential risks.

Choosing alternative financing means you don’t have to worry about whether your business will qualify for a loan. Alternative loan lenders work with a wide variety of business industries — including those who have a cannabis business, making it easier than ever to get the funds you need.

Relationship-Centric Lending Solution

Another reason to choose alternative financing over a traditional business loan is that alternative lenders focus more on creating a relationship with the borrower and gaining an understanding of the business.

This is an important benefit that businesses should take into account. Traditional banks practice plugging in numbers in algorithms to determine a business’s eligibility. But these algorithms are not always in the best interest of the company, and therefore, leads to a higher chance of denial.

Alternative lenders will focus on building relationships with their potential clients in order to understand their needs better and help them get the approval they need.

This relationship-centric approach allows businesses to increase their approval odds with a lender. Not only that but establishing a relationship with your lender is great for business as you may need an additional loan in the future.

Custom Options for Strongest Parts of Customers

Even if you get approved for a traditional bank loan, the loan terms generally aren’t flexible or favorable to the business. This can be an issue for companies that have ever-changing needs.

For instance, all loans will have specific terms and conditions that you must adhere to. However, bank loans tend to have higher interest rates, and you’ll likely be charged a penalty if you want to pay your loan off early. In some cases, you could be paying interest on funds you’re not even using.

At MobyCap, we offer more flexibility through custom options that take into account the strongest parts of the borrower. This way, you know you are getting loan terms that fit your company’s specific needs and situation.

We can even modify payments if your business’s cash flow tends to fluctuate. This allows businesses to have access to cash flow without the worry of whether they will be able to pay the loan back

Ideal Candidates for Alternative Financing

Alternative financing is making it easier for businesses to get the cash they need to operate their company successfully. With that said, any business can take advantage of alternative financing. Here are 3 reasons why a business would want to choose alternative financing for their business needs.

  • This financing option is ideal for small businesses that have been denied a conventional loan
  • The bank does not offer the type of financing the business needs
  • Your business has an immediate need for capital

Obtaining financing is an important step to a successful business. With the right financing, businesses can reinvest in their company and ensure that business operations continue to run smoothly.

Many business owners go down the route of traditional business loans. But qualifying for a bank loan can be difficult, has less favorable loan terms, and takes longer to get the funds in your account.

On the other hand, alternative financing has a quicker approval period and works with all types of businesses. Even more, alternative lenders take a relationship-centric approach to really understand their customers’ needs and goals and can customize the loan to fit their unique situation.

MobyCap provides fast, easy business funding of up to $5M to help companies reach their business goals effortlessly. Call (737) 577-1180 or email info@mobycap.com to discuss how we can help you grow your business.

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