What’s the Difference Between Bank Loans and Alternative Funding?
The world of business financing can feel intimidating– especially if you’re worried about money and how you’ll get it. You may be apprehensive about approaching banks for a host of reasons; and they’re probably all running through your head on a constant loop:...business too new, credit too low, money tied up, in a rush…
The good news is that even when your jabs at traditional funding fail, there are safety nets in place to help you and your business stay on your feet. Alternative funding can make a great choice for anybody who has trouble securing a bank loan– and that includes you.
But what is alternative funding? Sounds a little convoluted, we know, but it’s actually less of a mystery than you might think. Here are a few things to keep in mind as you begin your journey to pin down a source for funding; you may be surprised by what you learn.
What You Need to Know About Bank Loans
Bank loans are the most widely-known form of financial solution for businesses in need of funding. They make an excellent funding choice for those who are stable financially and have the time to tackle appropriate paperwork, meetings, etc. Banks loans offer a type of funding that translates to minimal cost for businesses.
Bank loans come with their own brand of drawbacks, though. Businesses looking to secure funding quickly will often need to look elsewhere for money. If your cash flow is shaky, you’ll also need to contend with planning and budgeting for regular payments according to a schedule set by the bank.
More than anything, bank loans are stringent. They’re safe and they’re easy (provided you have the time and can get approved), but they come with a strict set of rules that you must follow. If you find yourself concerned about tight payment schedules or getting funds in a pinch, you may be better served by other options.
- Bank loans tend to offer the lowest cost for capital
- They often necessitate extensive lead time
- Application and disbursement processes can be long and muddled
- Restrictive accessibility
- Regular payment liability is created when you agree to a repayment term
- Some bank loans require a down payment
Understanding Alternative Funding
If you’re in need of some flexibility with your funding, looking into alternative funding options might be the way to go. Businesses of varying ages and sizes can get approved for funds rather than being locked out immediately based on these factors. If you’re in need of quick cash, you’re also more likely to get it through alternative funding than from a bank loan. There are fewer hurdles to jump over and fewer bureaucratic rules to adhere to when you opt for alternative funding options. If you’re comfortable with leveraging capital and future funds and need cash in a pinch, the alternative route is certainly something to consider.
- Alternative funding is more flexible than a traditional bank loan
- Can be especially beneficial to startups
- Startups oftentimes have a hard time securing traditional funding due to their “newness”
- Alternative funding can take many forms; a few include
- Invoice factoring, which leverages your unpaid invoices to give you advances on money you expect in the future
- Asset-based lending, which utilizes company assets as collateral
When Alternative Funding Might be Right for You
It can be stressful for anybody to explore business funding options. If you have reason to suspect you’ll be unlikely to secure a bank loan, apprehension can rise even further. No matter your issue, though, things aren’t always cut and dry. Even those battling the likes of low funds or poor credit may find they have more choices for funding than they think.
Looking into alternative funding is an ideal course of action if you’re looking to ease the worries and stress that come along with traditional bank loans. Alternative funding can be an excellent fallback option when you’re on the hunt for funding for small businesses and other less-established organizations.
Here are a few things to consider as you ponder the decision of how to approach securing the funds your company needs:
- Your business is brand new
- Startups are often low on cash and manpower; it’s not uncommon for banks to be disinterested in offering money to companies without their own steady cash flow
- Even well-funded startups have to battle the fact that they have no history; banks are hesitant to deal with small businesses that don’t have proven track records
- You need flexibility
- If you’re worried about your ability to make set payments on a schedule, it’s best to avoid loans with set payback rules; you’re better off staying out of a bank’s hair entirely than squeezing into a lucky deal and being stuck unable to make payments
- Time isn’t on your side
- Sometimes, even the most well-established businesses find themselves in situations that require cash fast
- A bank may be more than willing to take you on and provide funding for your small business, but it’s entirely possible that they won’t be able to get you your funds quickly enough
- You’re on the hunt for lower interest rates
- Many alternative funding groups are able to offer clients lower interest rates than traditional banks
- Because of the intense competition within the alternative funding sector, interest rates are regularly driven down
Are you worried about the pace of funding setups by traditional banks? Looking into alternative funding may be your answer. LendSpark can move more quickly than many formal banking options. Need finance in two to three days? We’ve got your back. Discover the LendSpark difference today and take advantage of our experience; we can work with you to get creative and put together even the most complex deals.
Working with LendSpark gets you high dollar-value loans at rates better than you’ll find anywhere else. If you’ve been turned down for a loan by a bank, alternative funding might be a great way to consolidate debt or finance the growth of your business. Call us today for a quote.