If your small business is like most, you operate on a very tight budget and may need additional funds in order to take advantage of an opportunity that helps your business grow. If your business is a startup or doesn't quite meet the bank's requirements for a conventional loan, a small business loan from an alternative lender may be a viable solution for your funding needs.
However, if your credit is good, you have time to apply and wait for a small business loan, the SBA 7(a), can give you better interest rates and longer repayment terms. If you intend to use your loan to purchase real estate or long-term-use equipment, an SBA commercial loan, in conjunction with an SBA CDC loan can provide you with 90% of the financing required for the project and the lowest interest rates. If you need startup business loans or less than $50,000, SBA microloans or alternative microloans are practical options to consider.
Is an Alternative Business Loan Right for You?
Alternative business loans are generally smaller than conventional bank loans, with available amounts starting as low as $2,000 and maximum amounts of up to $500,000. Terms are shorter, ranging from one month up to five years. Interest rates are higher than conventional loans, with the best interest rates averaging from 6% to 25%, like Lending Club, whose rates start at 5.9%. However, some alternative lenders may charge much, much higher rates, since alternative lenders aren't subject to the same regulations as banks.
The biggest benefit of alternative loans is that lenders are eager to lend to small businesses, even those that haven't been in business for a long time or that have less-than-perfect credit. Because of this, alternative loans are easier to apply for than conventional loans, with shorter, less paperwork-intensive applications; most are online and can be completed in under an hour. For example, OnDeck estimates that its application can be completed in as few as 10 minutes. Alternative lenders approve applications quickly, sometimes instantly and usually within a few days, and you can often receive your alternative business financing within a week. Another advantage of alternative business loans is that most can be used for any business-related purpose, from working capital to inventory to equipment purchase. Some, such as Kabbage, allow you to draw from the approved loan amount on an as-needed basis, which enables you to use the loan as a business line of credit. The disadvantage of alternative business lending is that it's more expensive than bank loans.
Alternative Business Loans: What Should You Look For
Before you accept any loan offer, it's important to read the entire contract and ensure that you understand exactly what interest rates, fees, costs and penalties you can expect and that you know exactly how much the loan costs in total, as well as upfront expenditures and daily or monthly payments. You want to be ensure that you understand your obligations and repayment responsibilities, and that you have the means to repay the loan in full and on time.
The dollar amounts available to you varies from lender to lender, with the smallest alternative loans starting at $2,000, and the largest as high as $500,000, although most offer up to $150,000. However, the amount that lenders are willing to extend may depend on your business's health, which they evaluate using several factors, including your cash flow and your business and personal credit history.
Interest rates are higher than you would expect to pay for a conventional loan, and may be expressed as a flat fee instead of a percentage-based interest rate, which can make it confusing to compare against other loan options. Loans with terms of less than a year can also make it difficult to see the actual APR. You can find online calculators that can help you convert the fees and rates to an APR, which gives you a consistent number to use for apples-to-apples comparisons. Be aware that the alternative lenders are not subject to the same regulation as banks and interest rates for some alternative loans may be exorbitant.
Most loans include an origination fee of up to 5% of your loan, although most average around 3%. Lenders may also charge an underwriting fee or a maintenance fee. Because fees vary from lender to lender, it's important to read your contract. If the fees you are quoted differ from the fees in the contract, you want to ensure that the lender updates the contract to reflect the quote they gave you before you accept the loan.
Alternative business loans have much shorter terms than conventional loans. Most offer options of less than a year, with the shortest having a term of just a month and the longest with repayment terms up to five years. The average repayment term is between 12 and 24 months.
If your small business needs a loan in order to take advantage of a time-sensitive opportunity, or if you don't quite qualify for a conventional loan and need an influx of funds to help your company grow, an alternative business loan can be worth considering. There are many alternative lenders available and they're eager to lend to small businesses, so it's well worth your time to shop around and compare your options in order to find the loan with the best rates, the lowest fees and reasonable repayment terms.
Balboa Capital Review
Balboa Capital is an Irvine, California, provider of alternative small business loans. It has been in operation since 1988 and provides funding to small businesses across the country. In addition to loans to small businesses, Balboa Capital also provides financing for franchising and equipment.
Alternative business loans, which Balboa Capital refers to as Flexible Business Loans, are small loans meant to provide small businesses with the working capital you need to maintain operations. There is no restriction on what the funds can be used for. As working capital, the loan can be used to pay for salary, expansion, inventory or any other purpose. Business funding through Balboa has a maximum amount of $250,000. The amount varies depending on your gross revenue and bank balances.
Balboa Capital's website includes a loan calculator that gives an estimate of how much funding you could receive. The calculator requires you to enter your annual revenue, monthly credit card volume, credit rating and contact information. The tool then provides a cash amount you could be eligible for. A loan officer from Balboa contacts you to continue the process.
Loans can be applied for online through Balboa's website. The application requires information about both the business and the owner as well as bank statements. After the application is submitted, Balboa will contact you to work through the details. Once the loan is approved, funds will be deposited into your bank account within 48 hours. There is no prepayment penalty and Balboa offers a variety of repayment options. Interest rates are not listed online.
Balboa also offers unsecured loans for businesses that have limited assets and a low credit score. These are businesses that may not otherwise be able to get funding from a conventional lender. Unsecured loans for businesses with bad credit have flexible terms and may not have any collateral requirements.
On Balboa's website, you can find a resource center, including whitepapers and infographics, which provides helpful information for small businesses. Some topics discussed include cybersecurity and financing.
Balboa Capital is a nationwide alternative small business lender based in California. Balboa funds working capital loans for small businesses to use for salaries, inventory and other things. You can apply online and receive funding in 48 hours.
Credibility Capital Review
Credibility Capital is a lending marketplace that matches borrowers seeking alternative small business loans to lenders willing to fund them. Studies have shown that many small businesses, especially those with around $5 million in revenue, have difficulty finding funding from traditional lenders like banks.
Loans that are funded through Credibility Capital range from $10,000 to $150,000. Interest rates and terms vary depending on the lender that funds the loan. These small business loans are most often used as working capital to purchase inventory, refinance debts or for any number of other purposes.
An alternative business loan can be appealing for many reasons. Conventional lenders may attempt to provide you with more expensive loans that are beyond your credit capacity. Credibility Capital uses proprietary underwriting to take into account your current credit and match you with a loan that is appropriate to your business's size.
Credibility Capital uses a Credibility Capital Risk Score (CCR Score) to match you with a lender. The CCR Score incorporates different variables to find an interest rate that is linked to the creditworthiness of your business. Some factors the CCR Score takes into account include credit history, payment data and cash flow. The CCR Score allows potential lenders to be matched to you quicker. Potential lenders include hedge funds, banks, family offices and even insurance companies.
There are no requirements listed, though Credibility Capital does mention that it is focused on prime credit small business borrowers. Prime credit is considered very good and is a step down from super prime. A prime credit score ranges from 680 to 739.
Loans through Credibility Capital generally have a quicker process than some other loans. SBA loans, such as the 7(a) or 504, can require a lot of paperwork and have lengthy application processes, which may not be a viable option for small business that have time constraints and need quick funding.
Credibility Capital does not have a lending calculator or much in the way of information on its website. The best way to learn more is to fill out the form and specify the amount of loan you are seeking.
As an online marketplace for small business funding, Credibility Capital matches you with a variety of lending options. If you have good credit and are looking for a quicker way to find business funding, it may be a good option for you.
Dealstruck is a lending platform that provides alternative business loans to small businesses. It is relatively new, having been established in 2013. It has provided over $5 million in funding to small businesses. Its aim is to help businesses move away from short-term, high-cost financing toward more conventional bank financing.
Alternative business financing through Dealstruck has a maximum amount of $250,000. Loan terms can be up to 36 months with fixed monthly payments. Loans are often used for working capital to fund things such as equipment purchases, new hires, expansion or improvements.
In order to be eligible for small business funding, your business must show a record of positive cash flow and profitability. You must also have an asset base to use as collateral as well as a history of borrowing and paying down debt.
You can prequalify instantly through Dealstruck's website. Some of the requirements for prequalification include being in business for more than a year, meeting certain monthly revenue thresholds and having good credit. You will be asked to provide a brief explanation of what you intend to do with the loan and information about your business, such as year-end revenue, average monthly revenue and monthly net profit. After prequalification, you will receive a loan estimate.
Our estimate quoted an interest rate between 14 % and 19%. While high, Dealstruck does claim that these rates are lower than other lenders. Loans typically include an origination fee of between 3% and 4%.
Alternative business loans tend to have higher interest rates than other types of loans, such as those regulated by the SBA. One drawback to alternative business lenders is that there is that they are not as tightly regulated as loans through banks.
One advantage that alternative lenders have over conventional lenders is how quickly they can process loans and disburse funds. Dealstruck allows you apply for a loan through its web portal. After the loan is approved, funding can be dispersed in four to seven days.
Dealstruck is an alternative business lender that provides loans to small businesses that might fall short of qualifying for loans from banks and other conventional lenders. Loans from Dealstruck can be for as much as $250,000 but interest rates are higher than other, more tightly regulated loans. You can apply online and receive funding in as few as four days.
Fundation is an online provider of alternative small business loans. It was founded in 201l and is funded through private investment firms. Fundation is a direct lender and administers its loans directly.
There are two main types of alternative business funding that Fundation provides. The first is a working capital loan. These loans usually have a maximum amount of $150,000 with a term between one and two years. These loans are used for cash flow management as well as the purchase of inventory and a variety of other business needs. Business expansion loans are available for up to $500,000 with terms of up to four years. These loans are used to invest in your business's future.
Interest rates on loans through Fundation can have interest rates as low as 7.99%. Rates are fixed but depend on a variety of factors, including your profitability, your business's industry, your credit history and your past payment history. Fundation also charges an origination fee that ranges between 1% and 3% of the loan. There are no prepayment penalties. Payments are withdrawn from your business checking account twice a month.
In order to be eligible for one of Fundation's business loan options, you must be in business for at least five years, though this service will consider businesses as young as two years in certain cases. You must have annual revenue greater than $250,000 and a FICO score greater than 600.
You can apply for an alternative business loan through Fundation's website. The application takes as little as ten minutes and is interactive, informing you about your credit profile as you fill it out. In addition to the information the application requires, you need to submit two years of tax returns and three months of bank statements. Fundation can retrieve these documents for you with your permission.
After applying, you can receive your funding within three days, usually a day after Fundation executes on the loan documents. After applying, you can monitor and manage your loan through Fundation's online portal.
Fundation is an online based alternative small business lender. It provides loans for businesses seeking working capital or wishing to expand. You can apply online and receive funding as quickly as three days after you apply.
Kabbage is an online lender that provides alternative small business loans. It is based in Atlanta, Georgia, and was established in 2009. It has funded over $500 million to small businesses. As an online lender, Kabbage provides loans to businesses across the country.
Kabbage refers to its alternative small business funding as lines of credit or advances rather than traditional loans. These advances can range from $2,000 to a maximum of $100,000 and have a term of six months. Advances may be used to buy inventory, pay for marketing or invest in new equipment.
Kabbage does not charge interest on its loans, but it does charge a loan fee. The loan fee ranges from 1% to 13.5% for the first two months and then 1% for the remainder of the term. There are no application fees or early payment fees.
In order to be eligible for business funding through Kabbage, you must have a minimum FICO score of 500 and as little as $2,500 in monthly revenue. You must apply for an advance online. The application and approval can be done in minutes, though it may take longer if there is difficulty obtaining your business data and verifying your bank account. Funding is disbursed quickly after approval.
In addition to looking at your credit and financial history to determine loan eligibility and amount of funding, Kabbage will also link to other sources, such as eBay, PayPal and QuickBooks, to evaluate your business. Your social media presence may also be another factor that Kabbage considers. Kabbage may be an option for small businesses that operate only online.
Kabbage offers a program that rewards businesses that refer other businesses. Online you can find useful resources for small businesses, including blog posts that offer advice about applying for other small business loans and how to manage your social media presence.
Kabbage can be a good alternative for businesses that are too small to attract conventional funding. It offers alternative business financing through its online portal, which can approve and disburse funds quickly, often within minutes of approval. Kabbage considers more than just credit and revenue, looking at your performance in online markets and even at your social media presence.
Kalamata Capital Review
Kalamata Capital provides several alternative business financing programs, including alternative loans for companies needing extra capital for a variety of reasons. This finance company uses data analysis technology to evaluate the overall performance of your business to help you apply for a loan. In this way, it can provide loans for companies that have not been able to get a traditional loan.
This alternate business lender's strength lies in its speedy and simplified loan-application process, Kalamata Capital has two main requirements: first, that you have been in business for at least two years; and, second, that you have generated $200,000 or more in revenue over the last 12 months. Loans are repaid via electronic payments debited from your business account.
Unlike other alternative loan companies, this one does not promise lower rates. In fact, it says in its website that many of its clients "graduate" to lower-priced and longer-term financing products. However, if its solutions don't appeal to you, it can also help you seek financing options with one of its other financing partners. It seeks to form a long-term working relationship with its clients, so if Kalamata Capital cannot meet your current need, it may be able to help you in the future.
Kalamata Capital offers loans for as much as $750,000. It doesn't list any information on the website about the rates, fees or repayment terms. It's best to contact Kalamata directly to learn more about the details of its loans.
Companies have used loans from Kalamata Capital to hire more employees, expand their businesses, purchase inventory and pay taxes. This alternate business financing company works with a wide variety of businesses from gas stations to staffing services and car parks to medical practices.
In addition to loans, Kalamata Capital provides several other alternative business financing services ranging from working capital loans and equipment financing to accounts receivable factoring.
Kalamata Capital does not always offer the cheapest rates, but it does offer a quick approval for companies that may not have been able to get traditional loans. It has fewer requirements as well as multiple options and associations with other lenders to help you find the best financing alternative for your business.
Lending Club is an online credit marketplace that connects investors and businesses. As such, it provides alternative loans, often with low interest rates and fewer requirements than traditional banks. Nonetheless, it is regulated by the Securities and Exchange Commission and works with an FDIC-insured bank. This lender works with businesses in 45 states. It does not service businesses located in Iowa, Idaho, Maine, North Dakota, Nebraska or Rhode Island.
To qualify for an alternative business loan through Lending Club, you need to have been in business for at least two years, have an average of at least $75,000 in annual sales and no bankruptcies or tax liens. If you have partners, then the individual applying for the loan must own at least 20 percent of your business and needs to have fair or good personal credit. You can use this financing for nearly any business expense from working capital to acquiring property to refinancing an existing loan.
Applying for a loan takes a few minutes to fill out an online form. The application does not call for appraisals, business plans or projections. You do not need to have collateral for loans up to $100,000; however, beyond that amount, Lending Club requires loans be secured with a UCC lien. This lien covers your liquid assets like inventory, cash and accounts receivable, so that if you fail to make payments, Lending Club can sell these assets in order to satisfy the loan. You can borrow up to $300,000 with this company.
If you prequalify, you may receive several loan offers to choose from. Once you decide on a specific loan, you have a few more forms to fill out. If you have questions, you can contact the client advisor assigned to your case. Qualified investors provide the funding for the loan, which is administrated through WebBank, an FDIC-insured lender.
Interest rates start at 5.9%, and there is a one-time origination fee of .99% to 5.99%, which WebBank sets. Loans have fixed interest rates and run one to five years, although you can pay it off early without penalties or fees. The funds are deposited to your bank within a few days of approval.
Lending Club provides alternative loans to businesses for refinancing or expansion. While it works with an FDIC-insured bank, as a credit marketplace, it finds independent investors to fund your loan. In this way, it can provide alternative business loans without several of the requirements mandated by traditional lenders.
OnDeck is an alternative loan provider for small businesses, offering up to $250,000 to qualified entrepreneurs. It differs from other business lenders in that it doesn't just consider your loan history, but the full financial story of your business. Because of the company's big-picture focus, it may be able to provide you loans or lines of credit even if you've been denied by traditional lenders. OnDeck has two loan programs: the OnDeck Term Loan and the OnDeck Term 24 Loan.
OnDeck term loans charge interest rates ranging from 10% to 38% plus a 2.5% origination fee. To qualify, your company must have been in business for at least a year, have a $100,000 annual revenue and at least one owner with a credit score of 500 or greater. You repay these loans with daily or weekly payments taken directly from your bank account. The loans generally run six to 18 months. The longer the term of your loan, the higher the interest rate.
OnDeck Term 24 Loans are 12- to 24-month loans, ranging from $50,000 to $250,000. The interest rate ranges from 19.99% to 39.99%, which includes a 2.5% origination fee. The qualifications are stricter for Term 24 loans: You must have been in business for three or more years with a monthly revenue of $100,000. Here, a strong business and personal credit score is needed.
This alternative business financing company can also provide lines of credit up to $200,000. Businesses can use the money for all manner of needs, including purchasing inventory or equipment, hiring new employees, launching marketing campaigns or acquiring a new location or renovating an old one.
OnDeck loans are originated under Virginia or California law, depending on the location of your business, though it can work with businesses across the U.S. It works with Spanish-speaking entrepreneurs. In fact, you can switch to a Spanish version of the website with just a click of your mouse.
OnDeck is an alternative business lender that can provide loans or lines of credit of up to $250,000 for a multitude of purposes. It considers the entire financial picture of your business and may be able to provide you financing where traditional methods have failed.
SnapCap is an alternative loan provider that seeks to make the lending process faster, easier and more accessible to small businesses and startups that may not have the collateral or credit record required by traditional lending institutions. It offers loans for four different business situations and promises competitive rates and terms.
This alternative business loan provider reviews the health of your business, including whether you have good cash flow, loyal customers and a profitable outlook. It does not have a minimum time-in-business requirement, nor does it have a minimum annual sales revenue threshold for qualification. It also does not require collateral for loans.
This online lender offers a 48-hour turnaround time on applications and handles everything electronically, resulting in a simplified lending process. Another nice feature of this lender is that it does not auction off your loan; it is the single source of money for you and your business.
SnapCap's average loan term is under a year, although the maximum can be up to 18 months, according to its online loan calculator. With the calculator, you input your credit score, loan length and amount. You can then review your monthly payments, total repayments and savings compared to traditional business loans. Loans through SnapCap have a maximum amount of $250,000 and repayment terms up to 18 months. SnapCap's loans have a fixed interest rate, but you'll need to speak with one of their representatives as the company does not list specific rates on its site.
This alternative business lender analyzes your company's performance to approve the loan. Even though the company promises a 48-hour turnaround time, the higher your loan request, the longer approval may take – up to three days. You do not need to submit tax forms, but you do need to provide bank statements.
Small businesses across the nation have used this alternative business financing institution to secure loans ranging from equipment and inventory to general purpose cash. In fact, SnapCap offers four types of loans groups under the categories of general purpose, inventory, equipment and expansion. Regardless of the purpose, the features are the same and include quick processing time and competitive interest rates.
An added plus for startups and entrepreneurs just starting out is that all of SnapCap's loans are regulated, and they provide reporting to the major credit bureaus, an important step for those wanting to establish and build strong business credit.
The Business Backer Review
The Business Backer is a small business financing institution that offers alternative loans and other financing methods to qualified businesses. In addition to its in-house programs, it has a network of traditional lenders it can refer you to if that is your best option.
This financial institution can help you secure funds through a revolving line of credit, factoring services and assistance in getting a traditional loan. In addition, it offers alternative loans for purchases and can create a loan deal specific to your company's niche and needs. It also has equipment-leasing services.
Purchase financing does not require a down payment. You can choose graduated or deferred monthly payments, which could be useful if you have seasonal fluxes in your income. This loan also comes with automatic preapproval for future financing. It also does not reflect on your credit score, so a purchase finance from Business Backer does not interfere with your ability to get another loan elsewhere.
To qualify for an alternative business loan from the Business Backer, you need to be in business at least a year, have an annual revenue of $150,000 or more, and one of the business owners must have a personal credit score of 550 or higher. However, this business considers your entire story, so if there are circumstances that have negatively affected your credit history, this company is still able to approve your loan.
The Business Backer's website doesn't list specific information about its fees, rates or repayment terms, so if you'd like to learn more, it's best to contact them directly.
The application takes only minutes to complete and can be done online or over the phone. A financial advisor contacts you to discuss your best alternatives for business financing. Once approved, you can have funds wired to your bank account in as little as two business days.
This alternative business financial institution has been recognized by both national and local venues. You can find customer testimonials on its website as well helpful videos and information on business financing.
The Business Backer does more than provide loans to small businesses. It can help you with alternate business financing from factoring to lines of credit. Further, it works with traditional banks to help broker the best loan options for you. It has some minimum requirements but considers your entire business history, including extenuating circumstances.