Tuesday, September 26, 2023

6 Alternative Loan Options to Consider Outside of the Bank

Mismanagement or lack of cash flow leads to the collapse of 82% of small businesses.

Starting and running a company requires a great deal of financial commitment. Unfortunately, traditional bank loans aren’t readily available to small businesses.

The requirements for a bank loan are a deal-breaker for many upstarts. If you need funds for an investment or business, alternative loan options are ideal. Here are some of the alternative business loans to consider.

1. Term Loans 

Term loans, also known as installment loans, refer to a traditional business financing type given by credit unions and banks. The term loan means that a borrower repays it within a set timeline and with a variable or fixed interest rate. The structure is similar to that of a traditional business loan.

Today, the term loan is quite different. You can get the term loan from an online lender’s site. These modern term loans are customizable and more user-friendly, making them better alternatives to bank loans.

These types of loans maintain the borrowing and fee structure found in traditional term loans. Their transparency, flexibility, and ability to send and receive payments electronically make borrowing easier. The best part about these online term loans is that they are easy to qualify for despite bad credit.

You might want to vet different term loan lenders to get one that has the best rates and terms. The process is faster, and you can’t compare to the hassles with bank loans.

2. Private Lenders

Private lending is another source of alternative loans that you can consider. It is structured like a mortgage. However, the lending guidelines are not stringent, and you’re more likely to get a loan with these lenders than banks.

With a private lender, the benefits are impressive. Other than the few requirements, you’ll be in control of the process, and the loan is flexible. These advantages make private lenders better lenders for businesses and people seeking to invest.

Direct private lenders are flexible, and their process of granting loans is friendlier. They offer different types of loans, such as asset-backed loans. You might be lucky to get low-value loans, which you’ll hardly get with conventional financial institutions.

3. Merchant Cash Advances 

Merchant cash advances are short-term loans that are easier to get than traditional bank loans. However, it’s crucial to understand the interests as they can be higher than a bank loan.

The merchant cash advance isn’t like typical loans as it’s an advance on one’s future earnings. Lenders front the sum of money and recoup them as an advance plus interest on your daily sales. The amount you pay everyday fluctuates depending on the day’s sales.

With the merchant cash advance, there’s no deadline as to when one can pay. The lender keeps taking a share of the daily sales until you clear the loan. For new businesses that don’t have a good credit history, this option would work.

However, you need to be keen as some MCAs practice double-dipping, which is similar to double interest. You might want to consult a financial consultant to ensure that you’re making the right decision. If you opt for this alternative loan option, check online for MCAs with competitive fees and rates.

4. Crowdfunding 

Crowdfunding is an approach that small businesses use to raise funds online from their peers. This type of financing has various kinds, including rewards, debts, equity, and charity. The type of crowdfunding you choose determines the payback.

With equity-based crowdfunding, a lender will invest in a business, and in exchange, they get a share.

The rewards crowdfunding, on the other hand, requires the borrower to donate something in return. In most crowdfunding platforms, borrowers pay a percentage of the funding fees depending on the kind of financial assistance they get.

It’s crucial to note that crowdfunding is only ideal for some types of businesses. Sites such as Kickstarter only focus on companies that seek to create innovative or media-like products. Others like GoFundMe lean more on charitable projects.

5. Seller Financing 

Seller financing is a loan alternative that you can use to expand your business. While it’s one of the toughest when setting up, it is flexible depending on your negotiating abilities.

One of the most popular approaches for this type of financing is where a home seller offers a Vendor Take Back mortgage. The VTB involves a lender holding back a property’s mortgage to help in financing a purchase.

The terms and rates of seller financing depend on the borrower’s ability to negotiate with the lender.

If you want to invest in a real estate property, this would be an ideal loan alternative. Not every mortgage lender agrees to this arrangement, and you might need to research widely to get the seller financing loan.

6. Business Credit Cards 

Business credit cards are one of the ways you can pay for your business expenses. You can use the business credit card to pay for small or large items while still building your credit profile. This option is an ideal alternative to loans.

If you decide to go for a business credit card, choose one that guarantees you the highest cash-back for most of your business purchases. Some credit cards can help you with office expenses, while others are ideal for travel.

Alternative Loan Options Are Essential for Small Business Owners and Other Investors 

Financing a business or any other investment can be overwhelming. You might want to consider alternatives to bank loans, as getting them can be daunting. With an alternative loan option, you’ll have more flexibility and lenient terms.

Some alternative business loans include term loans, merchant cash advances, private lenders, seller financing, and crowdfunding. Most of these loans don’t compare to banks on the requirements. However, it is crucial to walk with a financial consultant to guide you on the best alternative loan program.

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