8 Best Alternative Lending Solutions for Small Business Funding

Many small and medium-sized businesses are thriving today due to alternative loans. If alternative investments were not available, many companies would have never existed in the first place today. Speaking of which, generally, traditional loans are not that easy to qualify particularly for the small business owners; therefore, they turn to the commercial business loans which are comparatively easier to avail.

However, there are various types of alternative mortgages available, and you have to be street smart to pick the right one. Below is a list of 8 best alternative lending solutions:

1.    SBA loans

The SBA does not issue loans, but it provides you a cushion by guaranteeing a share of your loan, while at the same time is backed by the US government. In other words, if you become defaulter, the SBA will pay the remaining amount of your loan to the bank, non-profit credit union or other lenders, while it also offers multiple loan programs  

2.     Short-term loans

As the name suggests, short-term loans have shorter repayment duration. They are usually scheduled to be completed within a year or even a few months. You have to apply for short-term loans through online channel rather than banks or credit unions. 

 

Here is how a short-term loan is different from a traditional loan:

●       Short-term loans are based on factor rate fee instead of interest rate

●       You receive the loan faster (often within 1 or 2 days)

●       Short-term lenders give more importance to the daily cash flow than the credit score

●       You have to pay on a frequent basis (often daily)

3.    Lines of credit

A LOC (Line Of Credit) can be received either way – through a bank or online medium. Much like the credit card, LOC gives you the luxury to draw a certain amount any time you wish to. That way, you have access to the capital throughout. One is not forced to withdraw more than he needs. Remember, nearly 30 percent of the businesses fail due to the lack of money. 

LOC is the best option for the businesses which don’t need a massive sum of money at a specific time. In risky companies, you never know when you might fall upon the lean times. LOC can rescue you during that tough phase. 

4.    Business Grants  

 

Business grants are commonly known as free money. It is perhaps not the easiest of the loans to obtain, but you should surely check your eligibility. Many business grants are funded by the government at different levels – federal, state, and local. The involvement of the government makes it more secure. Moreover, some NGOs also issue business grants.  

5.     Merchant cash advances

Technically speaking, MCA (Merchant Cash Advance) is a form of advance, not a loan. The lender gives you money and then recoups it (and the interest) with a percentage of daily sales. It means you are liable to pay more when the sale increases.

Usually, the borrower doesn’t subscribe to a set deadline in MCA. You have to keep on paying from the daily sales until you are done with the whole payment. 

  

6.    Equipment financing

Equipment financing is no different than what it sounds like. For example, you need a brand new computer or other machinery. So the money you need to borrow this equipment will be called equipment financing.

Equipment loans work best for the companies which can afford the down payment on a piece of equipment. The option of the “lease” is also available if you can’t put the money upfront. 

7.    Term loans

A term loan is also known as an installment loan. In this loan, the borrower has to repay over a specific term. For example, six months or five years. You can avail a term loan on both fixed and variable interest rates. 

Although term loans follow the same basic structure of traditional loans, they offer a bit more flexibility. An online term loan is often easy to qualify even with a relatively bad credit score and credit history. Since they are borrowed online, term loans save borrowers from a lot of hassle. On top of that, the online process adds in the transparency.  

8.     Personal loans

An overwhelming majority of entrepreneurs invest personal loans in businesses, as shown in the chart above. The criteria for traditional loans are not a walk in the park. In a situation where you have not been doing any business for long, a conventional loan will be out of your reach. Luckily, personal loans can be used for business purposes, as well.

If you want to set up a small business with an investment of about 35k to 50k dollars, a personal loan is for you.

                     

Conclusion

The financial condition of people varies from person to person. Therefore, there can not be a single scheme of credit which can suit all of us at the same time. The best possible options for borrowing are mentioned-above. You can weigh down your financial standing and take the particular loan accordingly for your small business.