6 Best Alternative Business Loans in 2021
Have you tried getting a business loan from a bank lately?
If so, we don’t need to tell you how frustrating it can be to get rejected for financing by the place that you’ve been using to conduct your financial transactions!
We’re here to tell you not to throw in the towel just yet. There are alternative business lending solutions out there for you – you just need to know where to look.
Get the full scoop on alternative lending just below.
What are alternative business loans?
To put it plain and simple, alternative business finance is any method of obtaining business loans other than traditional bank loans. And it’s a good thing alternative business funding options are out there considering the fact that more than 80% of small business loan applicants are denied funding by their bank. It’s a nightmare, to put it lightly.
But hey, if you do fall in that 80%, boy do we have some good news for you…
Believe it or not, the rapid advancements that we’ve all seen in #digital #technology go far beyond emojis, selfies, and ‘swiping right’! Click To Tweet
Believe it or not, the rapid advancements that we’ve all seen in digital technology go far beyond emojis, selfies, and ‘swiping right’. Thanks to advents in financial technology, the role of banks in the business financing industry may eventually be confined to the history of business lending.
Financial technology (or FinTech) is leaving a particularly large mark on the business lending industry. FinTech has opened the doors for alternative business lending to become an increasingly popular route that small businesses are taking to get their hands on the funds they need to grow.
In fact, the percentage of business owners who applied for loans through online lenders has gone up by more than 13% over the past 3 years. That’s even more impressive when compared to the steady (or declining) rates of loan applications to other lending institutions like banks and credit unions.
Alternative business funding takes many shapes and forms; thankfully, Become brings them together in one place with their online business lending marketplace.
Wondering what the big deal is? Well, the advantages offered by applying for alternative business loans through Become include:
- A quick application process
- No credit check when applying
- Increased funding odds
- Ability to compare and choose from alternative lending options
With dozens of top alternative lending institutions from across the country in one online marketplace, Become is able to provide you with some of the best alternative business funding solutions available for small business owners.
What are the different kinds of alternative lending options? We’re glad you asked…
6 best alternative business loans
Alternative business finance is a blanket term that encompasses many different types of business funding. For your convenience, we’ve selected some of the best alternative business loans available for small businesses. Have a look!
6 best alternative business finance options:
1. SBA loan
Small Business Administration (SBA) loans are a type of business financing that is partially guaranteed by the government. This eliminates much of the risk for the financial institution that’s actually issuing the loan and results in some of the lowest rates around.
To be clear, the SBA is not the entity providing the loan – they’re giving a guarantee to the lender who is providing the funds. It’s also important to mention that SBA loans take a bit longer to process than other kinds of alternative business loans. If you’re looking for fast business loans, SBA loans are not the quickest.
Top Pro: Low monthly payments
Top Con: Not for startups
Credit Score: 600+
Time in Business: 3 months minimum
Loan Amount: Up to $350k
Time to Funding: 14 days minimum
Loan Term: Up to 10 years
Top Lender: SmartBiz
2. Unsecured business loan
An unsecured business loan is a form of business financing that simply doesn’t require any collateral for a small business to qualify. This means that you won’t need to place your personal or business assets on the line and risk them being taken away should you fail to repay your loan.
Loan amounts and interest will vary depending on a variety of factors including your credit score and your business’s monthly revenue.
Top Pro: No risk to personal assets
Top Con: Higher interest rates
Credit Score: 350+
Time in Business: 6 months minimum
Loan Amount: Up to $250k
Time to Funding: 3 hours minimum
Loan Term: 6-24 months
Top Lender: OnDeck
3. Business line of credit
A business line of credit is a type of business financing that allows funds to be used on an as-needed basis and up to a specified limit. Unlike term loans, which provide a lump-sum of money to a borrower, a small business line of credit doesn’t place business owners under pressure to use all of the funds available (compare business lines of credit vs SBA loans, for example).
The money is there when you need it and can be used however you deem fit. It’s a great safety net, as you’ll only be required to pay interest on the funds that you actually use!
Top Pro: Use funds as-needed
Top Con: Penalties for late payments
Credit Score: 300+
Time in Business: 3 months minimum
Credit Line: Up to $100k
Time to Funding: 4 hours minimum
Interest Rates: As low as 4.66%
Top Lender: Fundbox
4. Equipment financing
Small business equipment loans are a specific type of business funding intended to cover the costs of purchasing or leasing equipment or tools which are to be used for business purposes. Think of kitchen equipment for a restaurant or a cement mixer for a construction company.
Unlike other types of business loans, equipment financing usually doesn’t require valuable assets to act as collateral. Typically, the machinery acts as its own collateral.
Top Pro: No collateral needed
Top Con: Equipment devalues quickly
Credit Score: 450+
Time in Business: 3 months minimum
Loan Amount: Up to $250k
Time to Funding: 2 hours minimum
Loan Term: Up to 5 years
Top Lender: Everlasting Capital
5. Invoice factoring
Invoice factoring is the process of selling unpaid invoices to a lending institution that will then collect the overdue payments on your behalf. The lender will typically provide around 80% of the value of the invoices upfront, and provide the remaining 20% after the overdue payments have been collected (keeping 1-4% as payment).
This is a particularly useful form of alternative business finance to help you deal with slow or non-paying customers.
Top Pro: Access funds tied up from slow-paying customers
Top Con: Placing customer relationships in the hands of a third party
Credit Score: 530+
Time in Business: 3 months minimum
Loan Amount: Up to $5 million
Time to Funding: 3 hours minimum
Loan Term: 1-13 weeks
Top Lender: BlueVine
6. Merchant cash advance
A merchant cash advance (MCA) is a lump-sum loan that a business repays by automatically drawing on a percentage of future debit and credit card transactions. Typically, cash advance loans have a shorter repayment period compared with other alternative business funding options – they also have smaller and more frequent payments.
MCAs are relatively easy to qualify for when you consider business lending statistics on how hard it is to get approved. Plus, they’re a particularly useful alternative business lending solution for businesses that conduct a large percentage of their transactions through debit and credit cards.
Top Pro: Fast access to cash
Top Con: High interest rates
Credit Score: 500+
Time in Business: 6 months minimum
Loan Amount: Up to $150k
Monthly Revenue: $12k minimum
Loan Term: 2-10 months
Top Lender: Uplyft Capital
When should you choose alternative business financing?
Even for those small business owners who are knowledgable of the pros and cons of alternative business finance, it’s important to recognize that there are certain circumstances when alternative lending far outweighs traditional bank loans. Those situations become even clearer when you familiarize yourself with the main reasons why your business loan application was rejected in the past.
Let’s have a glance at a few examples of when alternative business loans are the better way to go…
1. Alternative business funding for poor credit scores
Data shows that more than 80% of small business loan applicants with a high credit risk received either ‘some’ or ‘none’ of the financing they applied for – compared to just 19% that reported receiving either ‘most’ or ‘all’. On the other hand, 72% of small business loan applicants with a low credit risk reported having received ‘most’ or ‘all’ of the financing they applied for.
Clearly, having a poor credit score is a major concern for those in search of business funding – thankfully, there are plenty of alternative business finance options that are accessible to businesses even if they have less-than-perfect credit scores. In fact, you can qualify for certain alternative business loans with no credit check at all.
2. Alternative business funding for fast access to cash
Banks are not fast financers. It’s a simple fact, and the statistics support that claim. To be specific, recent research shows that more than twice as many business loan applicants reported long waiting times for funding when applying through banks compared to online lenders (26% for banks vs 12% for online lenders).
That paints a pretty clear picture that, indeed, alternative business lending solutions are much more time-efficient than their more “traditional” counterparts. If you’re looking for same-day business loans, for example, then alternative lending is what you should be searching for!
3. Alternative business funding for an easy application process
When small business owners apply for loans through banks, long wait times aren’t the only thing they’ll have to worry about. There’s also a mountain of paperwork that they’ll need to dig through just to get the application submitted. As a matter of fact, nearly 1-in-4 business owners who applied for loans through banks reported having a difficult application process.
Alternative business lending not only makes applying for loans simpler but also quicker, oftentimes by using the power of digital technology. For example, small business owners applying for business loans through Become can complete the entire loan application process in a matter of minutes. That, in turn, reduces the time to funding to *as little as 3 hours!
*Time-to-funding may vary depending on the lender and loan type.
4. Alternative business funding for e-commerce businesses
Banks and other lending institutions tend to view e-commerce businesses as if they’re the same as any other type of small business, but that’s not the reality. The biggest difference between online businesses and offline businesses is that there are far more sources of data available for e-commerce businesses to provide to potential lenders.
Wondering why that’s a big deal? Whereas banks look at data points like monthly revenue, time in business, existing loans, and so on, e-commerce businesses can provide a wealth of other online data points which lenders can then use to paint a far more accurate picture of the business’s overall financial health and even make better future predictions.
In short: some alternative lenders, such as those partnered with Become, are able to provide e-commerce loans with much better terms, rates, and so on.
Go your own way
Applying for traditional business loans is often difficult and rarely a breeze. Technology has opened up funding possibilities for small business owners that didn’t exist just a few short years ago. And with the information provided here, you now have a great tool to give you head-start in finding the best alternative business loans for your needs.
Now get out there and get funded!
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