merchant cash advance

Why Small Businesses Prefer Alternate Funding


Cash-strapped small businesses often find it tough to count on traditional financing methods to meet the financial needs of their business. To qualify for such loans they need to satisfy the following conditions:

  • They should have been in business for at least two years before the date of application
  • Their credit score should be above 640
  • The amount that they require should be greater than $250,000

Their best option for those of the small businesses that do not satisfy these conditions is alternative financing. It gives them instant access to funds upon the submission of minimal paperwork.

About 80% of small business loan applications are rejected by traditional banks every year. If alternative lenders can fund these businesses there is no reason why they shouldn’t be the first choice of many small businesses.

Alternate lenders aren’t governed by the rules and regulations that are laid out by the regulatory bodies and financial institutions. As a result, they get to choose whom they want to lend to and how much they want to lend. They help all those small businesses who require money to launch new products, purchase equipment, expand businesses, or attend to any other financial emergencies.

Here are 4 reasons that make alternate funding a preferred option of many small business organizations:

#1: Less Stringent Qualifications

When compared to traditional loans, alternative loans are easier to obtain. All that you need to do is prove your capacity to repay the amount. Alternate lenders are balanced and fair when it comes to making loan decisions. They are not too strict about credit scores and do not mandate elaborate documentation or paperwork.

#2: Abundance of Options

Most of the funding requirements of small business organizations are for the short term. Banks and traditional lenders find it a waste of time to approve short-term loans that amount to less than $200,000. Nevertheless, alternate lenders offer a myriad of options for businesses that need small amounts of cash every now and then. They can choose to receive lump sum advances, monthly payouts, or line of credits, as per their requirements.

#3: low-interest rates

Since the alternative lending market is becoming more and more competitive, offering low-interest rates has become one of the tactics that lenders use to gain an edge. Having comprehensive information about applicants helps these lenders manage their risks and determine the likelihood of the applicants repaying their loans. As a result, they don’t have to mandate any collateral or lend at a high-interest rate.

#4: Faster Approval

A small business will have to wait for at least a period of 30 to 60 days to get their loans approved from banks and traditional lenders. Every application has to be reviewed by a multiple sets of eyes, delaying the process by weeks and even months. Those that need quick funding do not find this option ideal. On the other hand, most alternative lenders operate online and approve loan applications within hours. Most applicants end up obtaining the funds within a day or two.

The most popular method of alternative lending is merchant cash advance. In fact, many merchant cash advance providers end up contacting restaurants and retail businesses through merchant cash leads. All they look for in a business is a decent amount of revenue through credit card transactions and an ability to repay. The advance is given in exchange for a portion of future credit card sales of the small business. A percentage of every credit card sale made automatically goes into the provider’s account towards repayment. Nevertheless, there are also other sources such as microloans, peer-to-peer networks, and crowdfunding that help many small businesses obtain the funds that they need.

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