Alternative lending is a relatively new process where small businesses can get a loan through places other than banks. Similar to how you can get a loan for your home online this is available for businesses, the magic and efficiency of the internet is streamlining business lending.
Banks have traditionally viewed small business loans as risky investments, but with increased scrutiny and regulations for banks their credit and approval standards have become stricter, resulting in fewer conventional business loans being made. Biz2Credit publishes a lending index and their research showing big banks approved 23% of funding requests while alternative lenders approved 60.7%. Startups have been hit the hardest, unless the owners have excellent credit – and even with excellent credit, it’s harder than in the past.
With the large gap between the number of business loans being requested and approved, alternative lenders have largely filled in the gap. These programs are every bit as legitimate as conventional banks, and some have SBA guarantees, and as such are a great alternative for startups and small business owners without excellent credit.
Other benefits from alternative lenders include: much less paperwork and easier to fill out application than traditional lenders, ability to have more flexibility regarding collateral requirements and types of loans offered and almost instant approval between hours to days. The downside is you will likely pay more in interest and have shorter terms than from a bank, but provide a great opportunity to build credit.