Do you know there is a better alternative to business banking?
The Federal Reserve just lowered the benchmark interest rate a quarter of a percentage point to a range of 1.5% to 1.75%. This may be the last rate cut of 2019, so if your small business is in need of low-cost funds, act now!
The decrease in the Prime Rate is an excellent opportunity to handle your need for working capital, debt refinance, inventory purchases for the holidays, and more. But where do you go when small business loan applications are commonly rejected by traditional financial institutions?
The Problems with Banks
According to Business Insider Inteligence's SMB Lending Report, SMBs make up nearly all of private sector businesses in the US and employ 60% of all workers in the country. However, SMBs usually have trouble when applying for loans at incumbent banks and instead are turning to alternative lending platforms.
According to a survey from the Federal Reserve Bank of Richmond, in 2016 only 58% of loan requests from small businesses were approved by incumbent banks, compared to 71% approved by alt lenders that same year.
According to data reported by SME Finance Forum, in 2018 there was funding gap of $5 trillion between the financing needs of SMBs and the institution-based financing available to them — causing SMBs to seek alternative funding options.
What is Alternative Lending?
Because small businesses typically struggle when attempting to receive financing, they often turn to alternative lenders who offer different lending options and provide users with easier access to obtaining loans, especially for consumers who may not have the best credit. Therefore, “nonbanks” are particularly attractive to small- and medium-size businesses.
Nonbank and Alternative Lending Industry Trends
According to Oracle's Digital Demand in Retail Banking study of 5,200 consumers from 13 countries, over 40% of customers surveyed think nonbanks can better assist them with personal money management and investment needs, and 30% of respondents who haven't tried a nonbank platform said they're open to trying one.
Types of Alternative Loans
Alternative lenders offer such a variety of lending options that you may not be aware of the range of products and solutions for your particular needs.
Small Business Administration Loans
Invoice Factoring (purchasing of accounts receivable)
Business Lines of Credit (new businesses, based on personal credit)
Terms Loans (established businesses, based on personal credit)
Credit Card Cash Discounting
Merchant Cash Advances (purchasing of future sales)
Credit Repair and Credit Monitoring
Commercial Real Estate
IRA and 401K Funding (without tax penalties)