Alternative lending really took off during the 2008 financial crisis, when banks dramatically cut back from giving out small-business loans. Online lenders began creating Web-based platforms that could process loan applications quickly and easily, providing the much needed relief for small-business owners who were turned away by banks.
Technology was a huge factor in the development of alternative lending. Online lenders use many types of data from bank statements and tax returns to even social media accounts to analyze a potential borrower’s finances.
Although there are many types of alternative lending, there are four main kinds.
- A term loan is a lump sum that you borrow and repay in about four or five years. This borrowing is based on set terms, including the annual percentage rate.
- A line of credit gives you access to an agreed upon amount of cash that you can use when you need it. This is typically used by businesses that need some short-term financing when there’s a gap in cash flow.
- Invoice factoring, or accounts receivable financing, is an option for businesses that have been dealing with unpaid invoices. Instead of waiting around for your customers to pay, you can get an advance on the unpaid invoices.
- Merchant cash advances allow you to get an advance on future credit or debit card sales. They’re relatively easy to obtain, however the APR is a bit high, so make sure you know that you’ll get the sales you’re getting the advance for.
Alternative lending is a great option when needing to deal with a business need or an emergency that requires cash you don’t have. Quick and easy access to capital allows you to deal with whatever problem you’re having immediately, whether it’s broken equipment or meeting payroll. Alternative lenders usually work quickly, and you can get approval in just a few days, and sometimes just a few hours.
If you’re looking to get started with alternative lending, check out GMA Factor.