Should a Small Business Look at an Alternative Lender For a Loan?

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When you want to start your own business, but lack the capital needed to get that business off the ground, you might consider seeking out an alternative lender for a loan for small business. Traditional loans or standard loans are those that you get from a bank or a loan company, but you should keep in mind that not everyone qualifies for one of these loans. You should look at the benefits of these loans, how much you can borrow and other funding sources that are available to you.

What is an Alternative Loan?

An alternative loan is any type of loan that you borrow from a nontraditional source. There are now websites that help you find individuals willing to loan you money with the agreement that you will pay back that loan and the interest charged by the lender in the coming months or years. An alternative loan may also come from a financial company built with the idea of lending in mind. These companies do not operate in the same way banks do and are not bound by the same rules, which may leave you paying more for your loan than you should.

Benefits of Alternative Loans

A common reason you might look at working with an alternative lender for a loan for small business is because you have a poor credit score. Everything from a late payment on your utility bill or an unpaid medical bill, to a foreclosure or a bankruptcy filing will all lower your credit score. Traditional banks will use your score and your credit history to decide if you qualify for a loan, how much you will get and the interest rate charged on the loan. With an alternative loan, lenders look at other factors like the size of your company and whether you have any patents on products to make a decision regarding your loan. Even if you have a poor credit score, some of these lenders may still take a chance on you.

Average Loan Amounts

According to CNBC, the average size loan that a small business obtained in 2012 was more than $330,000, but CNBC also found that most business owners applied for a loan of $100,000 or less. The amount you need often depends on any other funding sources you have, including angel investors or loved ones, the amount of financial support you need right now and how much the lender is willing to hand out.

Other Funding Sources

While working with an alternative lender for a loan for small business might help you secure the funding you need, there are other options. The number of people using crowdfunding sites like Kickstarter increased dramatically in recent years. They get money from users to pay for food trucks, grocery stores, salons and hundreds of other business types. You may want to consider working with more traditional investors as well. Investors will give you an amount of money based on the value of your business for a percentage of that company.

Related Resource: Small Business Administration

Starting a small business lets you fulfill your dream of owning your own company, but you must think about how you will fund that company and pay for all the supplies you need. Working with an alternative lender for a loan for small business is generally best for those who have a poor credit score that prevents them from securing a more traditional loan.

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