Your small business needs money, so it’s time to take out a traditional loan, right? Not so fast. Today, more and more small businesses are turning to non-traditional lenders, and for good reason. Non-traditional lenders are often easier and less expensive to work with, and they offer a wider variety of loan types with a fraction of the approval time. In short, it’s never been a better time to consider non-traditional small business lending.
The Old Way
Ten years ago, it was either a traditional lender’s way or the highway when it came to getting a small business loan. You had to show up in person, bring a lot of documentation, provide a thorough explanation of your business financing goals, be prepared with research for what kind of loan you wanted to apply for, and be somewhat knowledgeable about what loans you could qualify for before even beginning the application process. Chances for approval were slim, especially if your business needed less than $1 million in working capital.
A New and Better Way
Non-traditional lenders offer a different and often attractive approach to small business loans. Loan approval rates are typically higher — in the 60 percent range — and approvals often happen faster. Non-traditional lenders are more likely to take higher risks on a business with significantly lower credit and business history than traditional lenders.
Non-traditional lenders range from online lenders and online marketplaces to crowdfunding, invoice factoring, peer-to-peer lending and more. We’ll review the various types of non-traditional lenders in a future article, but for the sake of comparison, here are the main differences between obtaining a loan the old-fashioned way and obtaining a loan from an online marketplace like Lendio.
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The old way of borrowing required you to:
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An online marketplace allows you to:
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Select a loan product and adhere to strict payment terms.
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Choose from a variety of lenders, loan products and payment options.
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Take it or leave it.
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Discuss your options with a funding manager.
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Submit formal paper documents including*:
- Personal history including education and criminal records
- Your resume
- Formal business plan with P&L, cash flow and balance sheets
- Personal and business tax returns for the previous three years.
- A full year’s worth of personal and business bank statements.
- Documentation of collateral (the cost or value of the personal or business property you’re putting up)
- Legal documents including business licenses and registrations, articles of incorporation, third-party contracts, franchise agreements and commercial leases.
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Submit (online) a few months’ worth of bank account statements and answer some simple questions about:
- Your approximate credit score
- Your monthly sales
- Your industry segment
- Your company debt
- The reason for your loan request
- What you’ll be using the funds for
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Pay to apply for a loan.
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Apply for free.
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Pay for and provide credit reports before applying.
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Postpone a hard credit pull until your loan is processed.
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Spend months applying. Wait on average 90 days for loan approval.
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Spend 15 minutes applying. Get approved in as little as 24 hours.
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Keep Your Options Open
Online small business lending platforms are growing; it’s estimated these platforms will originate $52 billion in loans by 2020. Non-traditional lenders can provide you an easier path to accessing the capital that will keep your business afloat or help you grow. Even if you have a great relationship with your current bank and are happy with the way your account is managed, there’s no reason not to shop around when it comes to seeking additional funding for your small business. Many traditional banks have also partnered with online lenders to improve their processes and make borrowing easier for small business owners.
*To apply for a Small Business Administration (SBA) loan.
Applying for a small business loan? The process has changed.
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