Credit Card Processing Blog

Top 3 Reasons to Apply for Alternative Financing Instead of a Bank Loan

Nov 09, 2016 10:00 AM / by Reliance Star


In order to grow a small business, oftentimes, the thing you need is an immediate influx of working capital. When you are operating a small business, your revenues and profits may not be high enough to fund everything that you need to help your business grow and evolve. For example, your business may wish to be able to fulfill larger purchase orders but cannot afford the inventory to make it happen. You may also wish to hire additional employees to service a broader area but cannot afford their pay until they start bringing in new customers. This paradox can keep your small business small and prevent you from expanding.

What you really need is immediate cash to fund the expansion, which will, in turn, allow your business to generate greater profits. When it comes to obtaining additional financing, many small businesses go straight for traditional bank loans. This is because many small business owners don’t always realize that there are other options available to them. While bank loans can sometimes be effective, alternative financing methods, like merchant cash advances or private small business loans, may be more suitable for the specific needs of small businesses, and here’s why:

Get Funds Faster

With a traditional bank loan, there is often a long lead time between the initial application and actually receiving the funds in your bank account. While this timeline may be fine for a homeowner looking to remodel their kitchen, it is not conducive to the immediate needs of a business. With the purchase order example above, your business may risk losing that prospective client to a competitor if you are unable to fulfill the order within a reasonable amount of time.

Because of this, a traditional bank loan would not allow you to obtain the funds when you need them most. With alternative financing methods, on the other hand, you may be able to get the money you need within just a few days. This way, you’ll be able to continue to further the growth of your business at the most opportune times.

Easier Approval Process

Another problem that many small businesses run into when going through traditional banks for financing is that they typically have much more stringent credit requirements. If your credit score is not at the higher end of the scale, you may not be able to qualify for a loan at all. Furthermore, the rejected loan application will likely harm your score even more, making it increasingly more difficult to obtain financing.

With alternative financing methods, the lender is more likely to use additional metrics to determine your eligibility for a loan, rather than using your credit score alone. By taking into account the bigger picture of your business, they can gain a better sense of your ability to repay the loan, making their lending criteria much more flexible than a bank’s requirements. This makes it easier for you to get the funding you need.

More Personalized Service

Traditional banks deal with all kinds of loan applications, not just those from small businesses. As a result, their loan offerings are very broad in scope and may not necessarily be suitable for the needs of your business. Also, their loan products may have a limited ability to be customized to meet your needs.

On the contrary, alternative lenders often specialize in small business funding, meaning that they can work with your business to develop a loan structure that will work best for you. Your business’s needs are unique, so this personalized service can help you to get a loan for exactly the amount your business needs and with the most favorable terms to help your business, rather than a standard offering that may or may not be a good fit.

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