September 14, 2020 | 3-minute read (541 words)
Many business owners are approaching fintech or digital lenders for alternative funding that may fall outside of the traditional banking system. Nontraditional lending firms are non-banking organizations that provide financial services like loans and credit facilities. Here are a few important facts about nontraditional lending firms that every business owner should consider before choosing any option.
Why Use Nontraditional Lending Firms?
According to the Los Angeles Times, one of the main reasons why small business owners are most often attracted to fintech outfits or other alternative lenders is the faster cash distribution process. Once entrepreneurs submit their necessary application information and are approved to receive the capital, they can typically receive funds in 24 hours or less. The following advantages make nontraditional lending options an attractive option over traditional banks and lenders for some business owners.
- Offer an easy and fast application process.
- Often don’t require collateral against a loan.
- All business owners with any credit score (low to high) can usually secure financing.
- They typically provide you with more flexible schedules for loan repayment and convenience of accessibility to services.
- Digital lending platforms usually provide loans directly to borrowers from investors.
- The loan approval rates are higher.
- Digital lending platforms utilize advanced software and innovative algorithms to streamline the complicated process of applying for and receiving funding.
- You can negotiate with investors to get lower interest rates.
- You’ll have flexible use of funds, qualifications and requirements.
- Borrowers can apply for and monitor the status of loans via their smartphones and tablets.
- Online lenders use technology to offer faster loan approval and increase accessibility.
- Nontraditional lending firms enable you to borrow cash for short-term requirements whenever they arise.
5 Things to Consider
Nontraditional lenders usually offer loans with shorter terms and higher interest rates than traditional business lenders. Therefore, entrepreneurs must check and understand the following five factors before choosing any financing option.
- Nontraditional lenders sometimes charge higher interest rates. Therefore, always compare the available interest rate from other investors to choose the right one.
- Online lenders may not provide any discount if you repay your loan early, so always check all the terms and conditions about early payments.
- Some nontraditional lenders may charge hidden fees, so always go through all payment terms before you sign.
- Make sure you get your loan on favorable repayment terms since frequent repayment can hamper your cash flow.
- Select the right nontraditional lending option that fits your business’ needs. There are 11 different popular lending option to choose, as follows:
- Joint ventures and partnerships
- Invoice factoring
- Equity financing
- Business credit cards
- Peer-to-peer lending
- Venture capital and angel investment
- Accelerators and incubators
- Government financing
- Direct private lenders
Types of Loans Offered by Nontraditional Firms
Alternative lending is a viable option for your business if you have an immediate need for capital, especially in small amounts. Nontraditional lenders can provide you with fast funding with a short repayment term. If you’re unable to secure a bank loan, there are multiple kinds of alternative business loans you can turn to, such as:
- Peer-to-peer loans
- Merchant cash advance
- Asset-based loans
- Accounts receivable financing
- Equipment financing
- Small business administration loans
- Short- and long-term loans
- Working capital loan
- Lines of credit
- Revenue-based loans
- Pension-backed loans