If you’re in need of a business loan, you’ve probably looked at many avenues for funding. You can borrow from family members or friends, but this isn’t always a good option. If you come to the conclusion that it is between an alternative lender or a bank, you may be thinking about the main differences. This article will discuss some of them and draw a comparison between the two lenders.
One of the biggest differences between an alternative lender and a traditional lender such as a bank is the approval rate. You have a much higher chance of getting approved if you go to a non-bank lender. You can apply for unsecured business loans to help your company or when you have bad credit history. A traditional bank will not approve an unsecured loan, they only deal with clients who have an immaculate credit report. If you’ve no credit history and you cannot meet their grade, they won’t approve your loan.
Age of the Company
All money lenders will want to know that your business is healthy and making a profit before they approve a loan. There is no difference between alternative lenders and traditional lending institutions in this regard. The only way they differ is in the way they consider the age of the company. Traditional lenders will look for a business to be in operation for at least 3 years. Whereas an alternative lender may give you money even after 3 months, depending on their assessment of your business.
Alternative lenders don’t always require capital, sometimes they’ll assess your business and approve a loan even when you’ve no security to offer. In most cases, a traditional lender will require that you have some sort of asset just in case you default on the loan.
Most traditional lenders want long term borrowers, so they offer lower interest rates but still make a profit over the loan period. Alternative lenders tend to take more risks and offer short term loans that can be finalised within days. Because they take risks, the interest rates are usually slightly higher.
Although there are many differences between traditional lenders and alternative lenders, this article has highlighted some of the main ones. There are other things to consider when making a comparison, such as turnaround time, ease of application and paperwork requirements. All of which are usually more convenient when you take the alternative lending route.