These days, everyone likes having options. Consumers want multiple payment options so they can decide which method of payment to use. Business owners also want the freedom to run their companies the way they want. Alternative financing does the same thing for lending clients: It gives businesses options to get capital as comfortably as possible.
What Does Alternative Financing Mean?
The term financing is closely related to loans. Of course, a loan isn’t the only way to get capital. Cash advances and asset sales are a few other options.
Alternative financing is a large category that includes every type of funding that falls outside the “traditional” label. Traditional financing comes from banks and other large institutional lenders. Conventional loans usually have strict requirements related to credit score and revenue.
Alternative funding comes from private sources, including full-service lending businesses, investors, small business lenders, online lenders and even friends or family members. Some of these sources provide a huge range of loan options while others only focus on one area, such as equipment financing or invoice factoring.
What Are the Benefits of Alternative Financing?
Before talking about the specific options available, it’s important to understand why so many businesses are choosing alternative funding options these days. This category is popular because it adapts to business owners, not vice-versa.
Traditional loans are hard to get, especially for small business owners. The credit score requirements, cash flow requirements and collateral demands can be challenging for any business, but especially for ones with tight profit margins.
On the other hand, alternative lenders can run their business however they want. They can approve loans based on a different set of criteria, including factors such as business experience or passion. Like investors, alternative lenders are more likely to provide funds for companies they believe in, regardless of what the credit rating says.
Another benefit is that alternative funding usually offers a range of terms. It’s possible to customize a loan that works for individual businesses, with different types of down payments, monthly payments, terms and interest rates.
What Are Some Alternative Lending Options?
Business owners can find alternative financing for any need, including equipment, real estate, working capital and technology. Some possibilities include equipment financing, merchant cash advance programs, asset-based loans, accounts-receivable financing, purchase order financing and stated-income loans.
Many of these options have simple application requirements because they use the item purchased as collateral for the financing. There are also leasing options for lower monthly payments.