What is Alternative Financing?
What’s the first thing that comes to your mind when you think of business funding or financing? Undoubtedly, you are envisioning a scenario where you turn up at a bank, fill out an application, answer some questions and sign some paperwork. This is definitely one of those scenarios where reality rarely plays out like you thought it would.
If you’re the owner of a new small business or are a person with a not-so-stellar looking financial history on paper, your chances of acquiring a business loan from a bank is pretty bleak. In the majority of the scenarios, the bank will reject your application for one of the following reasons:
- Your business has been operational for less than two years
- Your credit score is lower than 640
- You need to borrow less than £250,000
The above mentioned three issues are a major reason why majority of small business owners are deemed ineligible for a small business loan.
Now, you could be thinking that these three issues does not apply to you in anyway, so your chances of getting approved for a business loan is better. Unfortunately that’s not the case. You will still have to complete a painstaking process, which will force you to jump through many more hoops before you are considered eligible for a bank loan. Recent reports have suggested that banks reject up to 80% of all business loan applications they receive.
Alternative finance lenders on the other hand don’t have to play by the same rules. These lenders are helping to fill out a big void in the lending market by offering financial products for business owners who are not eligible to take out a bank loan.
As alternative lenders don’t have to adhere to the same regulations as banks, they have the flexibility of determining how much they want to loan and which candidate is deemed eligible for a loan. The application process is also much smoother and quicker than a conventional bank loan, as it is determined on the basis of merit.
Whether you require funds to launch a new business, a new product, purchase inventory/equipment, or grow your business, you can fulfill your objectives by availing alternative finance products such as cash flow finance, invoice finance, construction finance, or asset based finance amongst many others.
Here are some benefits of taking out an alternative finance product that even bank loans can’t provide:
Rapid application process
It’s common knowledge that bank loan applications take many weeks or most likely many months to get approved. Additionally, if there is any concern or dispute about the valuation of the collateral offered (which usually occurs due to banks undervaluing the offered collateral to reduce their risk exposure), then the process might come to standstill.
Alternative financing on the other hand is a much quicker form of finance. Reviewing applications usually just take up a few days or in some cases can be processed in a matter of hours.
Access to unsecured business funding options
All bank loans are secured with collateral in the form of personal or business assets, which isn’t necessarily the case with alternative financing as a lot of finance products are unsecured.
Most reputed alternative finance providers offer unsecured funding options such as business lines of credit, working capital loans and business cash advances.
Approvals for bad credit
You will need to have a near spotless personal as well as business credit history to be considered for a bank loan. The latter of the two is particularly problematic as many entrepreneurs are not even aware of whether their business has a credit score!
Alternative finance lenders on the other hand don’t consider a candidate’s credit history as the ‘end all’ of their credit worthiness. Credit history is just one part of the big picture and there are many other important factors that are given due consideration by an alternative finance lender. Alternative finance lenders have a much higher approval rate for candidates with poor credit history than banks.
The Bottom Line
While bank loans are a great option in a lot of scenarios, alternative finance providers offer many small to mid-sized company owners the opportunity to avail an affordable and flexible funding product, that will help further their business ambitions.