Traditional Bank Loans vs. Alternative Lenders
Updated: Jan 27, 2020
We all know the go-to way to get a loan is through a bank, but have you heard of alternative financing? Alternative financing has many benefits such as quick processing time. Why should you seek alternative financing?
Traditional Bank Loans
Banks can be very black and white on top asking for a lot of information. With a bank they are looking for certain requirements, certain numbers to see if you qualify. They will ask for statements, assets, personal information, you name it. After you submit your documents it can take weeks to get an answer and that answer is usually a 'no' without explanation.
There is a high decline rate for small businesses. The bank requires a lot of proof to back up your request for more money. They want to be certain that you are making money and will continue to make money before investing in your company. Realistically, making it almost impossible for any small business to get the funding they need.
A strong credit score is a huge factor with a traditional loan. Any charge-offs or public records such as bankruptcies, they will not ignore. If you have any record of that there’s no way to go around it.
When applying through an alternative lender, you could be funded within the same day as you applied. Unlike the bank, all you need is an application and 3 months’ bank statements. You will have your answer much quicker usually between a couple of hours to a couple days.
Small businesses are most likely to get approved by alternative lenders. Alternative lenders have more lenient and realistic requirements and guidelines. A start up business will have more success applying for an alternative loan as opposed to a traditional loan.
Alternative lenders look at your business as a whole. Traditional loans require a strong credit score, alternative loans will look at everything and make a decision from there. This is a mixture of credit, income, finances, etc. If you had a low month due to medical problems, they'll take that into consideration! It’s not just a black and white “if you don’t meet our guidelines you’re declined” type deal.
As you can see there is a huge difference between traditional bank loans and alternative lenders. If you wish you can try to apply for both and see what your best offer is. Be aware that “shopping” around will hurt your credit due to being pulled every time you apply for a loan. Find out exactly what you need for your business then apply to see what options are available to you. Always remember that a company that cares will never let you make a decision that doesn’t work for you. Only choose what will be beneficial for both yourself and your company.