Entrepreneurs with bad credit scores are having a difficult time qualifying for the financing that they need to expand their businesses. Banks and other traditional financial institutions have strict credit requirements and less-than-ideal rating, which can disqualify them for a loan.
The good news is that business owners can look for financing from non-bank lenders. These alternative lenders offer quick capital to entrepreneurs, even if they have bad credit ratings. They are willing to deal with borrowers, who was turned away by traditional banks.
Non-bank lenders provide more flexibility and freedom to business owners by providing them access to cash when they need it the most. However, there are still some entrepreneurs who don’t know anything about alternative lenders. Here we will provide you with a short guide on how a non – bank lender can help entrepreneurs with bad credit.
What are Alternative Lenders?
When entrepreneurs need funding and financing, they initially go to a bank to sign up for a loan. However, getting a loan is not easy, especially for someone with bad credit. Startups find it even harder to qualify for loans because they have been in business for less than two years.
In recent years, non-bank lenders have emerged to fill in the void for entrepreneurs with bad credit. The requirements are laxer and based on merit and needs. Whether it is to launch a new product, expand the business, or get capital for a new venture, alternative sources of lending can provide the funds you need.
Benefits of Non-Bank Financing
Alternative lenders provide business owners with readily available and speedy access to financing when they need it. The following provides information on the ways alternative sources of lending can help entrepreneurs with bad credit:
1. Less Strict Qualifications
It is easier to qualify for a loan from a non-bank lender than the typical banking financial intuitions. Business owners will need to provide proof to lenders of their trustworthiness to repay the debt. The approval process is faster and requires less paperwork than the traditional process.
Alternative lenders use non-traditional ways for determining if the borrower is trustworthy or not. They review the financial footprint of the entrepreneur beyond the credit report. Thus, providing business owners, even the ones with bad credit, with access to nation 21 loans website when they need it the most through non-banking sources.
2. Lower Interest Rates
The alternative lending industry is very competitive and the competition drives down the interest rates. Non-bank lenders don’t adhere to the bureaucracy of traditional financial institutions, which gives them more flexibility regarding interest rates.
Alternative lenders compile a more comprehensive profile of the borrowers, which help them manage the risk better. Lenders can obtain more information about the potential borrower that they use to determine the ability to repay back the loan.
3. Wide Range of Options
Most banks offer business loans of $200,000 or more. They don’t want to provide loans less than that because they do not deem it worthy of their money or time. If you need a small amount of cash, then borrowing from the bank is not an option available to you.
Most small businesses require short-term financial solutions to solve their cash flow problems. Non-bank lenders offer a wide range of products that cater to the specific financing needs of entrepreneurs. Business owners can choose from short-term loans, lines of credit, or invoice financing, just to name a few.
Another alternative is a business credit card. You can typically use it for monthly expenses, as well as working capital requirements. However, most cards have high interest rates. That’s why you should consider using it only as a type of small business loan. It gives access to cash when you need it even without a collateral.
4. Faster Approvals
Banks and other traditional lenders have a longer approval process when compared to non-bank lenders. The application goes through several processing steps that can last for several months. Non-bank lenders streamlined the process and made it more convenient for borrowers. Some online lenders can approve loan applications within a few hours after submitting. The average waiting time for approvals from non-bank lenders is a week.
Common Types of Alternative Financing Tools
There is a wide range of financing tools from non-bank sources. Here are a few of them:
- Microloans – short-term loans up to $25,000 that are payable within five years. Many microlenders are willing and available to lend money to entrepreneurs and startups.
- Merchant cash advance – a type of financing tool depends on future credit card transactions and sales. The lender buys some of the future credit card receipts and uses them as collateral.
- Crowdfunding – online funding platform that uses a small amount of capital provided by a large number of investors to finance new business ventures. This option has become popular in recent years. There are different online platforms entrepreneurs can use to find potential investors.
- Lines of credit – Non-bank lenders offer lines of credit that are shorter, smaller, and more accessible. Most creditors require borrowers to be in operation for at least six months.
As you can see, there are many financing options for entrepreneurs with bad credit. These options can help them grow their businesses. It is important to shop around to find the right one that suits your needs. While there are affordable alternative financial solutions, there are non-bank loans that are too expensive for the small business to handle. As a result, credit score becomes even worse than before.
New forms of financing help small business owners and entrepreneurs get the funds that they need when they need it the most. When you are looking for non-bank options, make sure to compare their pros and cons. Afterward, you will be able to find the best alternative financial tool to help grow your business.