Why Small Business Owners Are Choosing Alternative Financing Over Bank Loans

One universal challenge faced by many small business owners is cash flow management. There are times the business needs more cash than is readily available. More businesses are choosing alternative financing to meet their funding needs rather than working with traditional financial institutions. There are three common reasons that businesses choose alternative sources of credit.


Speed of Funds Delivery


Many companies have found that alternative lenders underwrite loan applications and deliver cash to their clients more quickly than conventional banks. Some credit applications can be completed in as little as an hour. It’s common to receive approval in just a day or two with money deposited into the borrower’s bank account on the following banking day. Alternative financing companies frequently compete on speed to win business. Improvements to electronic underwriting and funding technology have given many alternative lenders a significant advantage over banks and credit unions burdened with older, labor-intensive systems and restrictive federal and state regulatory requirements.


Flexibility of Terms


Alternative financing options have been developed with the business customer in mind. Lenders know that small businesses often need flexible payment terms that match their cyclical cash flow and have designed products to meet those needs. Merchant cash advances base payments on a percentage of daily sales. PO financing and factoring wait for payments to be made from the small business customer without requiring repayments in the interim. Bridge loans are typically scheduled for payment once the planned liquidity event occurs, such as sale of the asset or procurement of traditional financing after a building renovation. In most circumstances there is a financing option that will serve the business.


Access to Capital


Many people have joked in the past that the only companies who can get loans from banks are the ones that don’t need the money. This need for capital has helped to drive the growth of the alternative lending industry. Business owners and their companies are turned down for credit by local banks every day. Alternative lenders from around the country offer these businesses capital for expansion, asset purchases, funding current operations, buying raw materials or inventory, and to meet their cash flow needs to grow the business towards further success.


Understanding Your Options


Business owners needing cash often look online to find information about alternative financing options. Loan terms and costs usually vary depending on the loan type, length of the loan, credit history and other factors. Understanding the costs and benefits helps owners make the best decision for their circumstances.

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