Getting funding for your business is challenging, especially if you’re dealing with traditional lenders like the Big Banks. One study found that traditional lenders only approve 58% of small business applications, whereas alternative lenders have an approval rate of 71%. The good news is that you have more financing options now than ever – the only challenge is finding the right alternative lender. Here are 4 things to keep in mind when looking for an alternative lender for your business.
Understand Your Options Before You Apply for a Loan
There are many different options for funding your business. It can take the form of direct private lending, crowdfunded loans or marketplace lending, factoring, or merchant cash advances. You could borrow money for an equipment purchase or lease. Each of these options has its pros and cons. For example, alternative lenders may let you leverage accounts receivable or credit card sales, but you can’t leverage an income stream you don’t have. However, this may be preferable to borrowing on credit, especially if you have poor credit.
Determine If the Lenders Will Work with Your Business
Some lenders only work with specific types of businesses. Others aren’t a match because they don’t fit your business model or only serve a given area of business such as franchises or non-profits. You can determine this by reading their website and loan requirements. Lenders like advancepointcap.com, for instance, have a clear list of businesses that they serve so you won’t have to waste your time.
Another factor to consider is the loan amount. Find out how much they’ll be willing to loan to your business and determine if this is enough to meet your needs. On the flip side, alternative lenders are more likely to make small loans that banks won’t even consider making. Doing this research could protect your credit, since applying for multiple loans could negatively impact your credit score.
Don’t Forget to Shop Around
Shop around before you apply for a loan. Research the interest rates, fees, and loan terms before you commit to a lender. What is the interest rate they’re going to charge you, and how does that compare to the competition? How long is the loan going to be? This can affect the total amount of interest you pay over the life of the loan. What are the additional fees you’ll need to pay? You could be charged for refinancing the loan or making an early principal payment.
Furthermore, you should find out what type of customer service program they have in place. This gives you a place to get answers to your questions before you apply for the loan as well as get help if you have issues with the loan.
Ask the Right Questions
Ask the right questions to narrow down your list of potential options before you sign up for a loan. How will they accept payments and how often will they accept them? How much will they penalize you if there are insufficient funds? Can you refinance or extend a loan if you’re having trouble making the payments? If so, what does that cost? These are all things you’ll have to know before you get tangled up in a rough situation.
Alternative lenders fill in the funding gap faced by small businesses. However, it is only a benefit if the loan and the lender match your business needs.
