Alternative small business loans are the most common type of business financing that isn’t furnished through a traditional lender such as banks or SBA lender. Many alternative lenders are online business lenders providing smaller loans with shorter terms and better interest rates as compared to lenders.
With lower credit and cash flow requirements as compared to traditional lenders and with less paperwork requirements before funding, alternative lenders provide many small businesses the ability to get a small business loan when a traditional loan wasn’t available.
Loans from Alternative Lenders
Alternative lenders provide somewhat similar funding programs to those given by the traditional lenders, as well as small business loan options that the SBA doesn’t provide, including the following:
Working Capital Loans
Working capital loans are short-term solution for small businesses in need of cash to fund daily regular operations. Working capital loans are available both traditional and alternative lenders. The advantage of a working capital loan is that your small business can keep its operations running smoothly while looking for other methods to increase your revenue. Where there are benefits of working capital loans, there are also some drawbacks, and one of the downsides of capital loans are that they come with short repayments and high interest.
Equipment loans are one of the funding programs that you can get from both traditional and alternative lenders. Equipment loans and leasing provide cash to small businesses for getting them the equipment they need. The equipment can be anything from fax machine to a vehicle. Rather than paying in full for the equipment, equipment loans and leasing can help you to pay for that large equipment in installments. These loans are relatively easier to acquire as compared to other types of loans.
Merchant Cash Advance
This type of funding is made to a small business based on the level of its monthly credit card sales. And the repayment terms on merchant cash advance vary by lender. There are some lenders that take out fixed amount out of business merchant account and some lenders take a percentage of daily credit card sales.
Merchant cash advances are relatively easy to acquire as compared to other types of business financing. Funding can take in just a couple of days and the repayment is made through credit card sales. The major drawback is its rate, which runs as high as 30% a month.
Business Lines of Credit
As with working capital loans, business lines of credit also provide funding for daily cash flow requirements. Actually business lines of credit are not recommended for larger purchases. The lines are available for three months to several years. With a business line of credit, draw the line up to amount you need and pay interest on amount that you use rather than paying for the full amount. Lines of credit are typically unsecured and do not require collateral. They have longer repayment terms and give you the ability to build your credit score.
Professional Practice Loans
Professional practice loans are especially designed for professional service providers, consisting of businesses providing legal services, accounting services and healthcare services. These loans are normally used for purchasing a practice, real estate, or new equipment; renovating office space; or refinancing debt.
Franchise financing is intended for small business owners who need financing to open franchise. Franchise loans are offered by both traditional lenders and alternative lenders, and can be used for working capital or to pay franchise fees, purchase equipment, and build chain stores.
Invoice factoring is also a type of small business loan in which alternative lender advances small business cash for outstanding invoices. As the invoices are collected, the lender receives the amount in addition to a fee. This can be a great alternative for businesses looking to get funding against the invoices that have yet to be paid.