Small Business Loan Requirements: Traditional vs. Alternative Lenders

Small business owners are often in need of business funding, either to get their business off the ground or sometimes to keep it running smoothly during the startup phase. Cash flow issues can plague new businesses as they simultaneously try to build and keep up with expenses. Small business loans can be crucial to survival and there are quite a few options available, from traditional lending institutions, such as banks and credit unions, to alternative lending providers. 

Traditional vs. Alternative Lenders

Working with a bank or credit union is common, however, many small businesses may find that they can not meet the strict requirements of these institutions. If a business is just starting out, with less than two years in financial statements, a traditional bank will likely have no options available. Or, if a small business has been struggling and has incurred bad credit, banks may not be interested in financing a turnaround. 

In addition, the traditional small business loan process can be lengthy and complicated. Often there is a need for rapid business funding, to make payroll for instance, and there is just no time to go through the traditional business loan process. 

Alternative lending can be a solution to some small business funding needs. These new forms of financing can often be obtained faster and easier than traditional bank loans. These lenders are willing to take on more risk than a bank or credit union but will also likely require a bit more from your business in the form of reduced loan amounts, shortened terms, or higher interest rates. 

Understanding small business loan requirements can help you determine which might be best for your business. 

Loan Requirements: Traditional vs. Alternative Lenders

While each lender has their own criteria for loan approval, there are some important requirements to understand as you evaluate business funding alternatives. 

Traditional lenders will consider the amount you are asking for and weigh this against your credit history and score, your cash flow, and any collateral you may have. If you have a poor credit history, traditional lenders may automatically turn down requests for funding. Additionally, limited cash flow and a lack of collateral to repay the loan should you default may make your business ineligible for traditional small business loans. 

Alternative lenders generally use a different model than banks or credit unions. Therefore, they can offer loans to small businesses that may not qualify for traditional business funding. Alternative lenders may consider potential borrowers who have a low credit score, and they do not require business assets as collateral since alternative financing is unsecured. This means that alternative lenders are taking on more risk, which will be reflected in the terms. However, for some business owners who cannot obtain traditional financing, alternative lenders provide a clear benefit. 

If you’re ready to learn about your options for business funding, ViewRidge Funding can guide you through the process. Just give us a call at (888) 241-7241, or fill out our simple Get Started form online.