Small business owners who encounter trouble securing traditional loans have an ever-increasing array of alternatives to choose from.
Established banks working through the U.S. Small Business Administration offer the lowest interest rates on small business loans, but it’s tougher for entrepreneurs to obtain financing if their business is too new or too risky. Nontraditional lenders have stepped in to provide easier-to-obtain business loans for such entrepreneurs. The terms of this type of financing can vary widely, but expect to pay more for this speedier, easier option.
If you’re looking for a new source of cash for your business, consider these nontraditional financing possibilities.
Online lenders are unregulated, nonbanking companies that provide a range of financing options to small businesses. Loans from online lenders are easier to get because they use a combination of traditional underwriting metrics and nontraditional factors, such as accounting data and social media performance. Financing decisions are delivered more quickly than with traditional loans, but the tradeoffs for that convenience include higher interest rates and fees. Online lenders typically offer term loans, lines of credit and accounts receivable financing.
A peer-to-peer lender acts as an intermediary between you and a third-party individual or institutional investor. It’s a type of online financing in which the lenders match borrowers with investors who are looking to earn a rate of return for their loan. After an investor agrees to fund your loan, the lender will transfer the amount directly to your bank account. You’ll then repay the lender according to the terms of the loan. The lender, in turn, will repay the investor. It’s an increasingly popular option among small businesses for its ease of approval. However, that simplicity will come at a price in the form of a higher APR. Continue reading “Nontraditional Ways to Get Small Business Financing” »