Alternative Financing Versus Traditional Loans: Factors To Consider

Alternative financing refers to funding options from private lenders. Banks and long-time financial institutions are considered traditional lenders. When shopping around for a loan, you may run into a wide variety of financing programs. What are the pros and cons of alternative lending options?

Amazing Flexibility With Alternative Financing

Banks generally receive certain assurances from the government. A substantial portion of their capital is insured. This assistance carries several strings attached, however, so banks have to follow federal guidelines when it comes to vetting potential customers. This is why traditional loans are often extremely rigid, with strict rules for credit score requirements and the way the capital gets used.

Alternative financing is completely different. Private lenders can make their own decisions about who to finance and what kind of terms to offer. This makes alternative loans flexible for business needs.

As an example, compare traditional mortgages with alternative loans for real estate. Bank loans have strict requirements for the property you want to purchase and its market value. You can’t get financing for remodeling projects or other improvements from a bank.

On the other hand, alternative lenders know a good deal when they see it. With alternative real estate loans, you can invest in the property purchase, remodeling costs, expansion needs, materials and even the cost of labor for renovations.

Fast Loan Approval

The same complicated government rules that make banks strict also slow down the application process. Many traditional loans, including small business loans backed by the SBA, take months to go through reviewal.

Alternative lenders don’t need to mess around. In many cases, they can perform a quick credit check and let you know if you qualify within five to seven days.

This boost in financing speed makes all the difference for many companies. If you’re looking to purchase inventory, you can’t wait months to get a loan. Your customers need their items ASAP. The same goes for real estate businesses that find a diamond in the rough. They need to close on attractive properties right away!

Options for Companies With Past Credit Problems

A few mistakes with your credit shouldn’t stay with you or your business forever. Sadly, with banks, that’s usually the case. Alternative lenders are more interested in your company’s current situation, your experience as a business owner, or the value of any collateral. Options such as equipment financing are generally available to any business, even ones with poor credit.