As the internet continues to be the go-to source for information, it seems as though there are just as many questions as there answers, sometimes making it that much more overwhelming for the small business owner in their quest to sustainability. Additionally, as the banking industry continues to rebuild from 2008, traditional institutions remain guarded when it comes to lending money. This only adds to the difficulty the creative and innovative face when trying to grow their businesses or get them off the ground. Alternative lending can be a great option for your small business.
1. The Internet Is Powerful
While this may seem like a time in which those with the entrepreneurial spirit may want to throw in the towel, quite the opposite is true: the power of the internet has helped lead the way for entrepreneurs helping entrepreneurs with online and alternative lending. This is precisely the answer for which small business owners have been looking as over half of small business applicants have their loans approved through alternative lenders.
2. Alternative Lending Is Not A Last Resort
There is a misconception that alternative lending is a last resort (perhaps because with the mountains of paperwork and high rate of denying applicants, bank loans seem exclusive), but in reality, they were created in response to the demands of the marketplace. Unlike traditional banks, alternative lenders use a wide-angle lens when looking at those businesses with whom they may invest, allowing them to thoroughly examine the overall health of a business. This means utilizing social media such as FaceBook posts, Twitter and Instagram followers, and Yelp reviews in addition to balance sheets and business plans.
3. New Technology Is Creating Better Lending Products
In turn financial technology, or fintech, uses new technology and innovation with available resources in order to compete in the marketplace of traditional financial institutions and intermediaries in the delivery of financial services. This allows lenders to give a fair shot to those small businesses that deserve increased capital to create better products but cannot obtain traditional loans. They do this by taking a hybrid approach to lending rather than falling into the traditional categories of Marketplace versus Balance Sheet lending. Banks see many small businesses as being too high risk, yet small businesses are the backbone of the American economy.
4. Innovation Is Giving More People Access to Capital
After crowdfunding platforms such as Go Fund Me and Kickstarter, which while innovate ways to utilize social media, don’t always generate the capital needed for significant growth, the only real option for those entrepreneurs who were unable to obtain a bank loan, was a merchant cash advance. (Although, one benefit to platforms like Kickstarter is the promise of goods or services to investors, rather than financial repayment.) Often times, these proved to not be the healthiest financial choice for a small business as the loan agreements, which include a percentage of daily revenue being paid to the lender, would result in a business effectively paying a 50 percent interest rate. Unlike most merchant cash advances or even traditional banks, online lenders often offer flexible terms that allow for added payments, but without hidden fees or seemingly arbitrary increases in terms or interest rates. This can be attributed to the idea that many alternative lenders have capital that is highly diversified, ensuring that they can be successful in both strong and weak economies, which bodes well for the small business owner.
5. Flexibility Allows Small Businesses to Grow
Flexibility in the types of loans that one can receive is also a factor as to why the fintech arena is booming and why it is ideal for so many small business owners, per Fundera https://www.fundera.com/resources/alternative-lending For example, a business that is looking to grow by perhaps hiring an additional part-time employee or purchase additional materials, may only need a microloan, generally defined as one that is under $35,000 and often not offered by banks. This flexibility allows businesses to grow at the rate they wish, and not forced to take out loans larger than their immediate needs (resulting in more money to be repaid) or run the risk of being denied when asking for a large loan.
6. The Real Benefits to Alternative Lending Has to Do With Expediency
The real benefits of alternative lending or online lending, however have less to do with diversity of capital as much as it has to do with expediency. Alternative lending typically require less paperwork, is more flexible, and businesses will receive decisions and funds more quickly. This is the result of embracing technology and understanding the nuances, at a faster pace than traditional banks. Additionally, the technology allows for ease in paying, offering varying options, including the model used by merchant cash advances, as many small business owners do appreciate the ease and speed of it. These are obviously key issues for the entrepreneur who is eager to test a new prototype or expand by hiring additional staff or opening new locations, while still wanting to keep overhead such as accounting costs, down.
The only person who can decide if obtaining alternative lending is the best option for their business are the entrepreneurs themselves. But, with the myriad of options available to small business owners, this is not the time to allow oneself to become discouraged by banks and red tape. Rather, this is the time to feel empowered in the knowledge that the entrepreneurs of fintech are there to support their fellows through alternative lending.
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