Most companies looking for a small business loan are looking in the wrong place. Fifty-nine percent of entrepreneurs said in a recent survey by Pepperdine University that they would look to a bank to finance their new projects. However, of those same business owners, only 27 percent found success getting their loan application approved.
Despite gains in the economy, some small businesses may still face significant barriers to bank-sponsored financing. Banks favor working with larger corporations because of their proven profitability and sound credit – lending money then becomes a low-risk move.
Many small businesses don’t have the credit available to get their loan approved. In a recent article, Forbes suggested that alternative lending is the best place for finding money to fund your business needs. Alternative loans can help establish credit and allow the borrower to improve their short-term capital, according to the source. The requirements for a loan are less stringent, and if used properly and responsibly, alternative lending can be a powerful tool in a small business arsenal.
Those seeking quick cash, between $50 to $150 thousand dollars, can have difficulty finding a bank that will service their needs without a line of credit, according to The Wall Street Journal.
“It is a substantially underserved segment of the economy,” said former American Express chairman and chief executive James Robinson III, who is investing in alternative lending companies. Banks can take weeks to review your information, and they will look at everything they can find about your company, from tax returns to revenue streams to the credit not only of the company but of the owners. Nontraditional lenders work fast, sometimes within 24 hours.
The repayment is fast, too. The new lending companies are structured to complete the repayment period in months instead of years. Often they will receive a portion of daily sales revenue out of credit card sales. These are called merchant cash advances.
Treasury Secretary Jack Lew is in favor of the new forms of lending available to small businesses. “These companies are using alternative measures to assess a business’s ability to pay back a loan,” Lew told The Wall Street Journal. “They use data like real-time shipping schedules, records held in a business’s accounting software, and even social-media traffic to determine creditworthiness.”
National funding offers alternative lending products like business equipment finance services.
