There are MANY different types of alternative business loans. The great thing about Delancey Street is we can help you get all types of funding for your business. While many business owners prefer getting traditional SBA loans, sometimes they may not qualify. In situations like this, alternative business loans are crucial in order to get funding. Below are some example types of alternative business loans, and more detailed information about them.
Types of Alternative Business Loans
If a bank loan isn’t possible, there are many alternative business loans you can look for. The exact type can vary, but they all have easy online applications, and have a greater likelihood of approval. Alternative business loans have flexible credit requirements, fast applications, and it’s easier to get access to funds than traditional bank loans. Alternative business funding means everything from short term working capital to long term commercial hard money loans. These types of funding options are great for businesses that cannot qualify for traditional loans.
What makes an alternative business loan right for you
There are many alternative business loans. These alternative types of working capital loans have less stringent requirements, and are faster for funding. Some can be used for startup working capital. Below are the key factors that should determine what type of business loan is right for you:
- Time in business: The minimum requirement of time in business
- Credit score: Some loans have minimum credit scores
- How quickly you get it: The length of time it takes from application to receiving the funds
- Cost of capital: How much you’re paying in fees and interest rate for the capital
Short Term Alternative Business Loans
These loans give you quick funding up to $500,000. They are easy to qualify for. You can get funded very fast. They typically have shorter repayment terms. Typically the term will be from 3-36 months, with an APR of 20-100%. These loans have a high APR. If you pay it back in less than 12 months you generally want to focus on the total cost of the funding.
Examples of Short Term Alternative Business Loan Funders
Two popular options for financing are Loanbuilder and Kabbage. LoanBuilder has short term loans which up to $500,000 in a lump sum payment. Kabbage has a line of credit, where each advance is taken from a revolving credit line. This is a great short term installment loan, especially amazing for businesses that have recurring expenses.
Loanbuilder vs Kabbage
- Up to $500,000
- Funded in 1-3 business days
- At least in business for 9 months
- Credot score minimum 550
- Minimum revenue of $40,000
- APR of 12 to 136%
- Terms of 13-52 weeks
- $250,000 max funding limit
- Funded in 1-3 business days
- At least 1 year in business
- Over 550 credit score
- $50,000 minimum revenue
- 24% to 99% APR
- Payback period of 6-18 months
Who is a short term alternative business loan right for
Short term business loans are a fantastic option for business owners with less than perfect credit, who need money fast, and who are ready to pay the loan back quickly. With a short term alternative business loan you can get funds in 1 business day to cover urgent needs.
How to apply for a short term alternative business loan
Most lenders have an online application process. Lenders will connect directly with you and your bank account in order to speed up the approval process. You can get approved in minutes, and funded in 1 day. Below are examples of documents you’ll likely need when applying for short term business funding.
- Personal tax returns
- Business tax returns
- Bank statements
- Balance sheet
What are medium term alternative business loans
Medium term business loans have terms of 1-5 years, and have interest rates of 10-40% APR. The loans require a strong credit score, high revenue, and a long time in business. They also have lower APRs, and longer repayment terms + usually have monthly payments. They typically take 1 week to fund.
Who is a medium term alternative business loan right for?
If your business has grown past the startup phase, a medium term loan is right. They have a lower APR, and longer repayment term (1-5 years). They are great to finance equipment, or long term growth.
What are medium term alternative business loan terms and rates
They very. You can usually get up to $500,000, at an APR of 10-40%, with a repayment term of 1-5 years. Lenders will usually charge a fee between 0-9%. You can expect funding in 1 week.
Qualifying for medium term alternative business loans
Standard qualifications for a lender that offers medium term alternative business loans are that you be in business for at least 1 year, have annual revenue of at least $25,000, and a credit score of 600 or more.
How to apply for a medium term alternative business loan
The application process for a medium term alternative business loan through a lender’s website online. You can get prequalified in a matter of minutes, and have the full application done in less than hour. Approvals typically occur in 2-3 days, and funding is possible in 1 week. Documentation can be slightly more stringent than short term loans. You will need to provide basic information about yourself and your business, in addition to personal and business tax returns, bank statements, income statements, P&L, and more.
This provide quick funding for your business. With this financing option you convert your invoices that are due in 30-90 days into immediate cash for your business. The invoice factoring company will pay you 80% of the invoices paid up front. The remaining 20%, minus the fees, is paid once the invoice is paid.
Why invoice financing is right
Invoice financing is a great option for businesses in the B2B sector. It is good if you have less than amazing personal credit, since it relies on the creditworthiness of your customer.
- You can get up to $25 million depending on the value of your invoices
- You pay .25% to .7% per week
- You can get funded in 1-3 days
Invoice financing qualifications
Business qualifications are minimal. It’s a great alternative for business funding options. You can get invoice financing if your clients are creditworthy, and have invoices due in less than 90 days. Your business should be in business for a minimum of 3 months. You should have a personal credit score of 530, or higher.
How to apply
Many invoice factoring companies will connect to your accounting system to analyze your invoices and determine if you’ll qualify for financing. By doing this, they’ll see which invoices qualify for invoice financing.
Online Inventory Financing
This is a line of credit used to purchase inventory. It can be secured with existing inventory, future inventory, or other business assets. It’s cheaper than short term loan options, and one of the best small business funding options for retail business owners. It’s great for startup businesses that need funding to get inventory. It’s also good for retail businesses that need funding quickly. The qualifications for this type of funding isn’t always clear. You’ll likely need to be in business for at least 1 year, have positive income, and at least 2 years of personal credit history.
These are not small business loans. They are advances on your future credit card receipts. The merchant cash advance provider sends you an advance and collects a % of your daily revenue as repayment. It is expensive, but it can be funded fast.
Who are merchant cash advances right for
They are an expensive short term financing option. They are useful though. MCA’s are often used by small businesses that couldn’t find other forms of short term financing. They need faster funding than traditional working capital like SBA loans. They are expensive.
- Lenders will give you 80-200% of your monthly revenue
- They’ll fund in 1-3 business days
- They’ll charge you 1.2 to 1.5 of what you borrowed
Merchant cash advances are a fast financing option for businesses that need working capital. Approval is possible in 24 hours. You can get funded in 2-5 days. The repayment term of a merchant cash advance can vary, and is typically repaid in 3-18 months.
How to apply for a merchant cash advance
The merchant cash advance application process is as simple as a 1-2 page process. It’s usually online. After you submit your application, you’ll be asked to provide information about your credit card sales and businesses operations. Typically, that means business tax returns, P&L, and more.
Alternative Business Funding FAQ
What are alternative lenders
They are lenders outside of the traditional banking system. They offer loans that are difficult for startups, and small business owners, to traditionally qualify for. They allow small businesses to get financing solutions that meet their needs. Most alternative lenders provide specialized financing options like merchant cash advances, invoice factoring, and more.
Can you get a business loan without collateral
It’s definitely possible. There are some that don’t require collateral, like a merchant cash advance. Many lenders offer unsecured business loans, and unsecured business lines of credit, if you have a strong credit score.
What’s the easiest way to get a small business loan
The easiest way is by identifying what the loan will be used for, and what options are available that match your purpose. Lenders focus on how you’ll use the capital, and usually choose a niche aspect of financing. It’s possible, for example, to get a business loan with a 500 credit score. Some forms of financing, like invoice factoring accept lower credit scores.