SBA loans are often hailed as the gold standard for small business funding due to favorable terms, low rates, and high funding limits. However, the application process is rigorous, demanding excellent credit, a substantial business history, and a protracted timeline, with no assurance of approval.
In scenarios demanding prompt funding, where time is a luxury, or when a business falls short of the stringent SBA criteria despite robust performance, alternative options become crucial. Traditional lenders like banks or credit unions, though seen as the next-best choice, pose challenges, particularly without a pre-existing relationship. While seeking support from family and friends is an option, it introduces unique complexities into personal relationships.
So, if speed is of the essence, and SBA or traditional lenders aren’t viable, what’s the solution? The landscape of 2021 offers a range of non-SBA and non-bank alternatives, from direct online lenders to accessible conventional options like business credit cards and emerging platforms like crowdfunding sites.
These alternatives cater to businesses facing hurdles with traditional institutions, those seeking funding beyond conventional offerings, or those in urgent need of working capital, especially in smaller amounts.
This post will delve into 10 non-SBA and non-bank small business funding avenues, helping you navigate choices and pinpoint the ideal fit for your business. Some options are available from both traditional and alternative lenders, while others are exclusive to alternative financing institutions. Before we proceed, let’s clarify what “alternative lending” entails.
“Alternative lending” is a broad term that encompasses various lending models occurring outside conventional financial institutions such as banks or credit unions. This category includes direct online lending, private lending, marketplace lending, and crowdfunding.
The rise of alternative lending options can be traced back to the 2008 recession, addressing the heightened need for accessible funding for small businesses. Leveraging new technologies in the underwriting process, alternative lenders have simplified lending for traditionally underserved borrowers, providing quicker access to funds for growth.
While alternative lending often comes with higher rates, the application process is significantly easier, and approvals are much faster. Some lenders can deposit funds in as little as one business day. These lenders are more inclined to grant smaller loans compared to traditional banks. Various financing options are available, such as term loans, lines of credit, merchant cash advances, and invoice factoring.
There are four primary types of alternative lenders:
Direct Online Lenders: Examples include Greenbox Capital®, Kabbage, and OnDeck, providing financing directly to small business owners through a streamlined online application process. They offer diverse financing options, including smaller loans, asset-backed financing, and purchases against future receivables.
Private Lenders: These lenders use their own funds for loans, offering flexibility beyond the constraints of traditional regulations. They provide options like asset-backed loans and bridge loans, with greater flexibility in the loan amounts, including smaller loans that traditional institutions might overlook.
Marketplace Lenders: Leveraging technological platforms, these lenders connect borrowers directly with investors, sidestepping traditional banks. They collect loans from investors and deliver funding to borrowers, earning commissions and fees on transactions.
Term Loans follow a traditional financing model where a lump sum is provided and repaid over a specified period through fixed, predetermined payments. While maintaining the fundamental borrowing and fee structure seen in term loans from traditional lenders, those offered by direct online lenders often boast increased user-friendliness and customization.