We all know that business loans from banks and NBFCs are the best and easiest way to finance once business. But there some small and medium companies who are not able to get a business loan approved, it may be due to lack of infrastructure, cash flow or because of a good business plan. This is a very tough situation for any businessman. It is even possible with a company with solid cash flow and good infrastructure gets rejected for a business loan, or there may be a case where the money borrowed from the business loan is not sufficient for their business plan.
What is an Alternative Loan?
An alternative business loan is a form of business financing. But it is not provided by a bank or a NBFC. Most of the alternative business lenders are online business lenders who offer loans to businessmen for their business. The amount of loan which they offer is smaller as compared to the traditional lenders. The tenure is also for short-term and with higher interest rates than traditional business lenders. But the benefits of alternative loans is that it can be availed with lower credit and cash-flow also, which is not possible with traditional bank lenders. Even the documents required for funding the business is comparatively less. Alternative loans have offered many companies and small businesses, the ability to obtain business funding when a bank loan isn’t available.
Alternative lending is one of the major force over the past few years and as a result of this, small and medium enterprises and businesses who were not able to qualify for a bank loan, are now able to fulfill the capital needs of their business.
Another plus point with alternative loans is businesses looking for cash for urgent requirements also had to wait for weeks or a month to get their business loan approved with the traditional system, but with an alternative loan, one can get the money even on the same day.
While the alternative loan became so famous and flexible, there are even many business owners who are unaware of this kind of loan.
Benefits of Alternate Business Loans
Benefits of alternative lenders include the following-
Less Paperwork: We all are aware of the fact that when one goes for a business loan with any traditional lender such as a bank or NBFC he/she needs to fulfill the eligibility criteria to get the loan approved and sanctioned. And in terms to satisfy the eligibility criteria the applicants need to provide so many documents such as IT return forms, business plan, CIBIL and so no. But when it comes to alternate lending these many documents are not required. Less documentation and less paperwork make it easier for the people to avail it.
More Flexibility: Term loans, lines of credit, and business loans all these offered by banks are great business financing options. But the availability of an alternative loan with more flexibility has made it even easier and comfortable for the loan seekers. With an alternative business loan, an applicant can use a piece of equipment, or even an outstanding invoice as a collateral.
There is also flexibility in the amount one borrow. Generally, it’s not economical for the banks to grant a loan of less amount, but alternative lenders a loan seeker can easily get a loan even of the small amount. Alternate business lending with this flexibility provides a chance even to the small business to grow.
Faster Funding: Alternative lending is much faster as compared to the traditional lending.
Since the alternate lenders are not traditional banking institutions, hence they aren’t affected much by the government’s regulations of big government lending institutions. This is also because banks grant a loan using money from the savings accounts, while the alternative lenders get money from other sources like hedge funds, investors, lines of credit.
Fast Turnaround Time: With alternate lenders, applications are quick and hence is their funding.
For the same loan, banks can take a few weeks and even longer to approve your finances. Alternative lenders the decision is very fast and even the disbursal.
Though it may come with a bit higher interest rates still it is worth to go for when you have less funding options available or when there is some urgent requirement.
Cons of Alternative business loan
More Expensive: All though alternate business loans have so many benefits but still it has some corns, the first one is it is more expensive than any other business loan as the interest charged on alternate is a bit high as compared to the other traditional business loans. So, if you go for a long tenure with an alternate business loan it may cost you much. But generally, alternate business loans are short tenure loans.
Shorter Terms & Smaller Loan Amounts: In addition to higher interest rates, financing through alternative lenders generally comes with shorter tenure and smaller loan amounts.
But this also depends on the kind of loan you want. Short tenure implies a shorter repayment period and this implies more EMI amount.
Uses of Alternative Business Loans
- Working capital
- Business Extension and Expansion
- Employee Payroll
- Marketing/ Digital marketing
- Hire employees
- Pay taxes
- Purchase Equipment and Inventories
- Pay mortgage
- Payments to the Clients