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Alternative Lending: Nonbank Business Funding Options


By Andrew Wang

You don’t have to walk into your local bank to a get a small-business loan these days. Alternative lending options are just a few computer keystrokes away.

But alternative business loans can be complicated and confusing, even risky. They’re not for everyone.

So when does alternative lending makes sense — or not make sense — for your business? And if it is right for you, what are your options?

We take a look at when and when not to seek alternative business funding and provide choices based on your needs.

Alternative business loans: Compare your options

Alternative lending has multiple upsides — among them, speed, convenience and looser requirements than for traditional loans. But it’s essential to compare loans by APR and make sure you can handle the required payments.

When alternative lending makes sense

When you can’t get a bank loan

Alternative lending took off in the wake of the 2008 financial crisis, when banks pulled back dramatically from issuing small-business loans. Online lenders stepped in to fill the void, creating Web-based platforms that could quickly process loan applications, providing relief for small-business owners turned away by banks.

Technology was a key factor in this development, as it allowed new players to swiftly evaluate the creditworthiness of borrowers. Online lenders use different types of data — bank statements, tax returns, online accounting sites and even social media accounts — to analyze potential borrowers’ personal and business finances.

There are four main kinds of alternative or online financing:

  • A term loan is a lump sum you borrow and repay in about four or five years based on set terms, including the annual percentage rate. This is generally the least expensive type of financing.

  • A line of credit gives you access to a set amount of cash that you tap when necessary. This is generally used by businesses that need short-term financing to bridge cash-flow gaps.

  • Invoice factoring, also known as invoice financing or accounts receivable financing, is an option for small businesses that deal with unpaid invoices. Instead of waiting to be paid, you can get an advance on those invoices, which you then pay back along with a fee when your customers settle their accounts.

  • Merchant cash advances offer a way to get an advance on future credit card or debit card sales. They’re easy to get, but think twice about applying because merchant cash advances are typically more expensive.

Banks still offer the best deals, especially federally guaranteed U.S. Small Business Administration loans. But those are usually tough to get — especially if your personal credit is less than stellar. You’ll deal with stringent requirements and a long wait.

When you need quick cash

Alternative lending offers a way to deal with a pressing business need or an emergency. If your plumbing goes out or you suddenly run out of supplies, you can’t really wait weeks, or even days, to fix the problem. Quick access to capital allows you to deal with the problem immediately.

With bank loans, especially financing backed by the SBA, you must submit a long list of documents, including business leases and a detailed financial history. Many online lenders require fewer documents, and their main focus often is whether you have the cash flow to make the payments.

In addition, you can get funds from alternative lenders within days, even a few hours, and the requirements are typically easier to meet.

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Here at TMM Group Ca, LLC are partners offer Small Businesses Term Loans, Merchant Cash Advances, Invoice Factoring, and Lines of Credit.

Contact our office to learn more.

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