Advantages of Alternative Financing for Small Businesses

What is Alternative Financing?

“Alternative financing” is an umbrella term for non-traditional loans offered by non-bank lenders. In contrast to alternative loans, traditional loans are typically accessed through banks and comparable financial institutions like credit unions. There are several types of alternative lending, including but not limited to:

• Microloans – Small loans under $50,000 available through individual lenders or microlending companies. Minorities, veterans, women, and other groups who struggle to secure traditional financing often find success with this form of alternative finance.
• Business loans for small business – Loans geared toward small and medium-sized businesses (SMEs) up to $1 million. Interested borrowers can secure this type of funding from various lenders, including banks, credit unions, and even alternative lenders.
• Lines of credit – A type of arrangement where the borrower is approved for a specific amount of credit. The borrower can use money up to that pre-determined limit as needed. They’ll pay interest only on the amount borrowed.
• Merchant cash advance – With this resource, the borrower will receive a lump sum of money at once and pay it back over time from future sales. It’s ideal for businesses that generate lots of credit or debit card sales.

Why Traditional Financing Doesn’t Work for Everyone

Traditional financing might seem like the obvious choice for businesses seeking substantial funding, but it isn’t a one-size-fits-all solution. Here are a few reasons why conventional funding may not work for everyone:

• High credit score requirements – Generally, a credit score in the mid to high 600s is required to qualify for a loan through a bank. Though, it does depend on the lender.
• Long approval process – The loan approval timeline is extended for bank-provided financing, ranging from weeks to months.
• Extensive Paperwork – Banks and other financial institutions require significant paperwork to evaluate every aspect of your business. In some cases, the volume of paperwork can delay financing or even discourage businesses from pursuing funding altogether.
• Limited options for start-ups, seasonal businesses, or those with variable income – Established business lenders prefer to lend money only to businesses that are well-established and low-risk.

Benefits of Alternative Financing

Depending on your business’s needs, alternative financing could be a smart solution. Explore the key benefits of this funding option to determine if it’s the right fit for your business:

1) Fast Approval & Funding

The approval process for non-traditional funding typically takes between 24 and 72 hours. This accelerated review allows you to access your funds quickly.

2) Flexible Credit Requirements

Non-bank loan approvals aren’t solely based on your credit score. Your lender will factor in your revenue and earning potential, as well. Therefore, even if you have bad credit or a brief credit history, you could still get approved.

3) Custom Repayment Options

Alternative funding solutions often come with tailored repayment options, meaning that you can make payments on a schedule that’s convenient for you. Your payments may be structured based on your company’s cash flow (daily, weekly, biweekly, etc.).

4) Access for All Industries

Business owners across a wide range of industries — including salons, auto shops, contractors, seasonal businesses, and more — can benefit from alternative financing. Even those in niche or lesser-known sectors can take advantage of this funding option.

5) No Equity Loss

When you opt for unconventional funding avenues, as outlined above, you get to retain full ownership of your business. This isn’t the case with venture capital (VC) funding, where investors take a portion of your company in exchange for the funds you receive.

When Should You Consider Alternative Financing?

There are several situations where alternative business funding is a smart choice:

• You’re temporarily low on cash and need money urgently to keep the doors open.
• You’ve just launched your company and can’t fully cover start-up costs like licenses and permits, business insurance, supplies, initial inventory, etc.
• Your credit isn’t high enough to satisfy the credit requirements associated with traditional loans.
• You prefer to hold onto your business’s equity.

Drawbacks to Be Aware Of

No financial solution is flawless. In the interest of full disclosure, we’ve outlined the drawbacks of alternative financing below:

• Higher costs than bank loans. To compensate for higher-risk borrowers, alternative business loans have higher interest rates than traditional ones.
• Shorter terms. Most alternative loans must be paid back in a relatively short timeframe, which could be difficult for some companies.
• Not ideal for large, long-term investments. Because of the previous drawbacks, these types of investments may be better suited to either traditional financial or equity-based investments.

However, these drawbacks are often balanced by the flexibility and speed of access to capital, making them a suitable option for many businesses.

At Greenbox Capital, we pledge to uphold ethical lending practices in every transaction, treating your business with the honesty, transparency, and respect it deserves.

Comparison Table: Traditional Loans vs. Alternative Financing

Let Your Funding Grow with You

Between fast approval, flexible credit requirements, custom repayment options, and more, alternative financial solutions hold some amazing benefits. They provide a viable path to business growth for new, seasonal, or disadvantaged companies.

You no longer have to wonder, “What is alternative funding?” or whether it’s a viable option for your business. If securing a traditional bank loan isn’t feasible, we encourage you to consider alternative financing as a flexible and accessible solution.