If you are a small business owner in the United States, chances are you have needed or will need a small business loan sooner or later. This is the nature of the industry and how most businesses flourish. Loans, contrary to popular belief, aren’t always a bad thing. Business owners connect them to poor returns, struggling financially and diminishing market share.
Yet, small business loans are taken out by business owners at different times and in different circumstances, depending on the type of business they run, the overall trend of the industry and the opportunities or threats faced in the short term as well as the long term. As such, a common source of taking out small business loans is through conventional means. This simply refers to loans that are provided by banks, the Small Business Administration (SBA) and other non-bank lenders who are guaranteed by the federal government.
However, with the advent of the 21st century, a lot has changed in a lot of places and the lending sector is no exception. Today, a small business owner can acquire a small business loan through multiple sources and go to various lenders to ensure their business gets the capital it needs to thrive and flourish. This article discusses the world beyond conventional loans and why it is necessary for business owners to be aware of all the loan acquiring options available in the market. After all, being well informed is a step in the right direction for any business owner who is looking to acquire a small business loan.
New Lending Options For Business Owners
In the new century, convenience is the commodity of choice. That is why everything has moved online, from buying your toothbrush to booking a trip for your vacation or taking out a small business loan for your business. The trend in the lending industry shifted with the arrival of alternative lenders, who first appeared on the scene back in 2005.
The UK based lender Zopa pioneered the peer to peer (P2P) lending and they were swiftly followed by US contenders Prosper Marketplace and Lending Club in 2006. The alternative lending industry has since then only gained more and more momentum in providing financing solutions to small businesses all over the world and especially in the United States. It is estimated that almost $502 million of total transaction value in 2018 alone was made possible through alternative lending programs.
Due to the arrival of so many more lenders and diverse lending options in the market, it has become easier for the everyday small business owner to decide how to choose a small business loan. The real reason alternative lending has taken off is that they provide loans to businesses who are rejected by banks and the SBA for conventional business loans. Considering there are over 29 million small businesses in the United States and only about one in five get accepted for a business loan by the banks, it leaves a huge gap in the market of businesses who end up without funding for future ventures.
As such, alternative lenders who offer creative financing solutions to businesses are in high demand. Online lending platforms such as Orumfy are the ideal medium of communication between applicants and lenders in this domain since they provide ease and transparency in the lending process. Some of the leading lending options being offered to small business owners are:
- Merchant Cash Advance (MCA): Merchant Cash Advance is a type of financing option which allows the applicant to get an immediate inflow of cash in exchange for ensuring the lender a certain percentage of their daily debit or credit card sales. This is a source of immediate short-term financing, usually up to 90 days and charges a high-interest rate of 20% due to the immediacy of the capital inflow.
- Factoring: Factoring is another alternative loan option that provides businesses with quick financing, especially those businesses that have been rejected by banks and the SBA loans and do not have the stellar credit score. However, where the MCA charges a fee on the daily debit and credit card sales, this type of financing allows the applicant to pass own its pending client payments to the lender so that the client’s outstanding payments are then collected by the lender himself. The lender, in turn, derives a profit from the processing fee tagged to the business.
- Business Line of Credit: In this type of financing, a pool of capital is set up and interest is only charged for the amount the business takes out of that particular pool. Once the interest is paid then the pool of reserve is reimbursed to its original quantity.
These were just some of the recent alternative loan options that have opened up in the market and that show there is a world far beyond the old conventional loan system. So if you are a small business owner looking for a business loan, then it might be prudent to consider alternative lending options.