August 2, 2021 | 2-minute read (394 words)
Many entrepreneurs turn to fintech or digital lenders for alternative financing after being turned down by conventional banks. Nonbanking businesses that provide financial services, like loans and credit facilities, are referred to as nontraditional lending firms. Before deciding on one, company owners should evaluate the following information about unconventional financing businesses.
The benefits of using nontraditional lending firms
According to the Los Angeles Times, faster cash distribution is the primary reason small business owners are drawn to fintechs and other alternative lenders. Entrepreneurs generally obtain funds within 24 hours or less after their application for capital is approved.
Nontraditional lenders may be a preferable option due to these advantages:
- Simple, quick application process and higher approval rate
- Frequently no demand for collateral as security
- Almost all company owners get funding, regardless of credit score
- Flexible loan repayment terms
- Loans typically delivered directly from investors to borrowers
- Borrowers can negotiate better interest rates with investors
- Nontraditional lenders allow you to borrow money for a short period
Five factors to consider in a nontraditional lender
Traditional business lenders usually offer loans with longer repayment periods and higher interest rates compared to nontraditional lending firms. But before deciding on a lending option, entrepreneurs should carefully weigh the five considerations below.
- Interest rates charged by nontraditional lenders can sometimes be higher. Compare interest rates with those offered by other investors.
- If you pay off your loan early, online lenders may not give you a discount.
- Nontraditional lenders may impose hidden costs. Read the terms before signing.
- Check payback terms. A loan requiring frequent payments could disrupt your finances.
- Choose the type of nontraditional financing that is best suited to your company:
Nontraditional lending options
|Joint ventures and partnerships
||Accelerators and incubators
|Business credit cards
||Direct private lenders
|Venture capital and angel investors
Types of loans offered by nontraditional firms
If you have an immediate need for money, especially in modest quantities, alternative lenders may be able to give you quick cash and a short payback period. If you are unable to obtain a bank loan, there are a variety of alternative loans you can turn to, such as:
- Peer-to-peer loans.
- Merchant cash advances.
- Asset-based financing
- Accounts receivable financing.
- Equipment financing.
- Small Business Administration loans.
- Short- and long-term loans.
- Working capital loan.
- Credit lines.
- Revenue-based loans.
- Pension-backed loans.