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Alternative Lending
What is Alternative Lending?
Difference between Alternative Lending and Traditional Bank Lending
Difference between Alternative Lending and Traditional Bank Lending
Bank financing for small businesses dropped significantly after the 2008 Recession. This lapse provided an opportunity for alternative (non-traditional) lenders to offer business loans as a way to support small businesses that banks deemed too risky.
Alternative Lending (also referred to as Marketplace Lending) is a term that refers to lending programs that are not backed by traditional banks. Some non-traditional lenders operate using an online model that makes it convenient for the business owner.
Difference between Alternative Lending and Traditional Bank Lending
Difference between Alternative Lending and Traditional Bank Lending
Difference between Alternative Lending and Traditional Bank Lending
Alternative Lending is usually quicker to get approved and offer more accessible financing option for small businesses than traditional lending institutions like banks. Banks require businesses to submit an extensive 5-year business plan and a mountain of financial documents. This can take months to complete. However, in most cases, alternative lenders will only require your credit score, recent tax returns, and bank statements, and can approve you within days or even hours. That’s because alternative lenders use cutting-edge technology that expedites the underwriting process quickly. As a result, the business owner is not biting their nails waiting on a response from the bank.
Getting approval from a bank can often take much as three months, and it's a more rigorous process that includes an in-person meeting and a slew of financial documents.
Alternative lending tends to be more flexible with the amount of capital you need and financing terms. Banks don’t typically see it as financial win for them to lend less than $250,000; whereas, alternative lenders offer loans as little as $5,000.
Advantages of Alternative Lending
Difference between Alternative Lending and Traditional Bank Lending
Advantages of Alternative Lending
1. Simple and Quick Application Process
It just takes a few clicks, at your convenience, to upload all of your information. No need to submit a business plan or attend an in-person meeting like you would applying for a bank business loan.
2. Twice as Likely to Get Approved
The big banks approve loans for small businesses at a rate of 27.9% as of the third quarter of 2019, while the rate for alternative lenders is doubled that at 56.5%. That's also higher than small banks (50.3%) and credit unions (39.7%).
3. Immediate Access to Working Capital
Whether you need a down payment for purchase of a brick and mortar for your business, purchase new equipment, replenishing your high-yielding inventory, alternative lenders work with speed to get you approved. In some cases, funds are delivered in just a matter of hours.
4. Flexibility
Alternative lenders can offer you a range of financing options to help you find the one that best suits your need for working capital whether it's for a $5,000 business loan or $500,000 for office renovations.