Many small businesses will not qualify for traditional loans. The company either needs a small loan that isn’t what a bank looks for, or their line of credit is too small, keeping them from getting a traditional loan. This is when it’s time to look into alternative funding.
When banks stop lending and your business still needs the extra money, alternative financing may be your best option. Banks have been giving out fewer and fewer loans to small businesses because they are risky investments. Not every company can afford to take out a massive traditional loan or meet the qualifications to get funds.
Alternative financing will set its own requirements, and if you meet them, you can get funds faster than the traditional way. Learning about your options as a business owner can be crucial when trying to make the best decisions for your company. Take a look at the requirements a company may ask before helping your business.
What Qualifications Will You Need For Alternative Financing?
One of the best things about alternative funding is that the qualifications your business needs to meet are a lot looser. You don’t need a 720 credit score and everything else that a bank requires before getting a loan.
Instead, this is what you’ll need:
- Be an open business for six months.
- Have a revenue of 10k per month.
- Have a credit score over 500.
Alternative funding companies can ask for different requirements than banks because they get the money from various places that banks do not. Every underwriting for the financing process is done by a human and customized to the small business owner’s needs. If all of the qualifications are in order, the lender can hand out the funds quickly.
Another benefit that sets alternative financing companies apart is that they dedicate support teams available night and day to every small business owner. Banks often view small businesses as a setback for them, and the customer service can be a pain when you need help.
Comparing the Qualifications for a Traditional Loan
If you are a business owner seeking quick funds, traditional loans are not the way to go. They require higher and more strict qualifications that can be challenging to meet. However, it is still important to learn about all of your financing options as a business owner.
So, here is what you’ll need:
- A high credit score of 750.
- Accurate monthly financial statements for at least two years.
- You will need a new plan showing how your business will grow bigger than previous years.
- Collateral in case you can’t make the payments.
Some banks can lower the credit score to 700, but the magic number seems to lay somewhere in between 720 and 750 for a personal credit score. Your business will have to be open for longer than two years to prove the financial statements you give the bank. You will need easy-to-sell assets to use as collateral. Any of these requirements you do not meet will result in denial. Alternative financing does not need all of this information.
Summing It Up
Both alternative financing and traditional financing can be good options for your business. The difference will be what you qualify for as a business owner, how much you will need, and how fast you need it.