Alternative lending has hit new heights of popularity in the last half decade, in large part due to the popularity of private asset loans with real estate investors. That’s not the only area that has been seeing increased popularity, though. Asset-based lending programs and working capital loans have also gained traction with investors and small business owners. There are a few reasons why that is so, even in cases where a bank loan might quote a lower interest rate.
1. Looser Credit Rating Requirements
Regardless of the type of loan you pursue, alternative financers offer options that are open to a wider range of credit scores and business sizes. Restrictions like two years of profitable operating history can lock startups out of bank loans, but alternative lenders focus on collateral asset values and income first, with credit rating as a secondary consideration if those two pillars are not as strong as they would like. That makes a huge difference for new businesses and those emerging from tough financial times that have only recently reached a growth stage.
2. Flexibility With Interest Rates
Part of the reason credit ratings are still part of the assessment is to fine-tune the interest rates to reflect total risk to the lender. As a result, those interest rates are flexible in ways you can control if you negotiate properly while setting the loan up. Taking a lower LTV is one way to get lower rates, as is a shorter term. You can also check into similar products with slightly different structures, because many alternative lenders have a wide range of programs to offer with several options for each need you could have as a business owner. As a result, you can choose the payment structure and financing costs that best suit your business in the moment.
3. Custom Lending Packages
Since alternative lenders tend to innovate a lot when constructing new products, they also tend to be willing to customize those products. That means more than just shifting the interest rate and down payment parameters, too. It means being able to finance partially with one model and partially with another to reach an ideal combination of monthly overhead costs, total finance charges, and debt term length.
There’s simply no comparing a large-scale standardized bank loan to something that is individually quoted according to the needs and income of your business. In the end, that’s really the biggest benefit to alternative lending. It’s just incredibly flexible.