Customer small business financing solutions delivered through a single, online application.
Loan Types
Free access to multiple funding solutions
See funding solutions from 75+ nationwide lenders with a single application.
Apply for financing, track your business cashflow, and more with a single lendio account.
Home Business Loans The Insider’s Guide To Alternative Lending
The old system of lending is inadequate for today’s business world. According to research from the SME Finance Forum, small businesses face major funding shortages. Last year, businesses needed about $5 trillion that institution-based financing was unable to provide.
Anxious to find new solutions for their financing needs, small business owners have increasingly turned to alternative lending as an easier source of money. Right off the bat, they usually notice higher approval rates and more robust resources.
During the financial crisis of 2008, entrepreneurs found it harder than ever to get approved for loans. Alternative lending emerged as a much-needed solution, providing easier access to financing. As Forbes.com put it, “For every bank that says ‘no,’ there are alternative lenders who are eager to say ‘yes.’”
As more and more small business owners turned to marketplaces, this financing method gained traction. The US Department of the Treasury conducted an in-depth study and concluded that marketplace lending is “a fast-growing sector that is continuously evolving.”Another study revealed that alternative lending will remain a “permanent part of the landscape.” The main reason for this staying power is that marketplaces provide access to funds for those who would often get rejected by a bank.
While institutional bank lending has been around for centuries, alternative lending is the new kid on the block. At its core, alternative lending is any type of financing that doesn’t follow the traditional structure of the aforementioned banking system. So rather than driving to your local bank, waiting for a loan officer to meet with you, and then beginning the tedious slog of applying for a loan that probably has a low approval rate, you can fire up your computer and submit an application from the comfort of your couch.
Online lending platforms have changed the game by connecting small business owners with a wide array of financing options. The lenders that participate in alternative lending are familiar with small businesses and willing to work with them. Traditional banks, on the other hand, often view small businesses as risky ventures. On top of that, the lower value loan amounts commonly sought by small businesses don’t make as much money for banks, further depleting their willingness to play ball.
Here’s a closer look at some of the key benefits you’ll find with alternative lending:
Every small business is different, so it stands to reason that cookie-cutter financing usually won’t be a comfortable fit. Alternative lending provides more diverse options courtesy of lending marketplaces like Lendio that gather more than 75 lenders from around the country. Ample options are essential when it comes to finding a loan that works seamlessly with your business operations and style.
When lenders receive an application, their first question will be whether or not they can trust the borrower to repay the money. The problem for newer businesses is that they haven’t yet had the opportunity to establish a financial track record.
With alternative lending, borrowers connect with lenders that have more relaxed lending requirements. This flexibility means a company just getting off the ground can often find the financing it needs to really take flight.
While bank loans can drag on for months before providing you with a single penny, the lending platforms in the alternative lending industry deliver expedited options. You’ll often have simpler applications that require less documentation. And because these platforms use advanced technology, the underwriting process is much quicker, which provides faster results, with some loan decisions arriving in just 24 hours.
Not only are the applications usually breezier with alternative lending, but the money hits your account sooner. This quick availability is a crucial detail because there are situations where small businesses owners need cash immediately, such as replacing a key piece of machinery, hiring new staff to meet seasonal demand, or taking advantage of an incredible new business opportunity that has suddenly presented itself.
Time is money, so any loan that provides faster funding is going to benefit your bank account. With some alternative lending products, you can actually get cash within just a few hours of approval from the lender. That’s right—you can have the money you need in less time than it takes to watch Titanic.
While banks are infamously stingy with their loans, the vast majority of requests submitted through a lending platform are approved. This higher approval rate saves you time and money, as you’ll get faster access to financing and won’t waste precious time and resources on options with low chances for success.
Because banks are set up to handle massive loans for large corporations, they often don’t want to deal with the more conservative financial needs of small businesses. But when you need to borrow $6,000 to buy new refrigerators for your restaurant, you shouldn’t feel pressured to increase that amount just to appease the lender. You should find a lender that is happy to provide you with $6,000.
Alternative lending helps make this possible by connecting you with lenders of all shapes and sizes. Some are equipped to offer loan amounts worth millions of dollars, while others provide you with smaller loans tailored to your needs.
Traditional loans often require mountains of paperwork, but any lending platform worth its salt will allow you to quickly upload any necessary digital files. Plus, the very nature of alternative lending is geared toward borrowers and less stringent requirements.
From application to funding, an alternative lending platform is programmed to keep your data more secure and make your life easier. The fact that you can connect with a lender via your mobile phone would’ve seemed unbelievable to entrepreneurs a decade ago.
While these benefits certainly make a compelling case for alternative lending, it’s important to note that you may encounter a couple of disadvantages with some of the financing options found on a lending marketplace. First of all, the interest rates on some loan products may be higher than average. Carefully research your options to make sure you find lenders that offer competitive rates that work for your budget.
Also, the lending terms may be shorter for financing options on a lending marketplace. Terms between 1–5 years aren’t uncommon, while bank loans typically offer more time to repay the money you borrow. Shorter terms don’t necessarily mean you’ll pay more money in total, but they do mean you’ll pay more each month.
Your first objective before seeking a loan is to figure out your plan for spending the money. The key elements of this plan are how much cash you’ll need and how quickly you want to see it in your bank account.
By identifying the size and timeline of the loan, you’ll be able to quickly narrow your options because many loans are structured in ways that could make them obsolete depending on your plan.
Here’s an overview for 11 of the most popular financing options available through lending marketplaces:
If the boundless possibilities available through a lending marketplace sound a bit overwhelming, never fear. Many experts can help evaluate your financial situation and guide you to the best option for your needs.
The thing to remember is that, regardless of your unique situation, there’s a loan out there for you. It just takes some thoughtfulness on your part to navigate the many potential matches to find the one that’ll make your heart sing and your bottom line soar.
Applying is free and won’t impact your credit
Talk to a rep at (855) 853-6346Mon-Fri 7:30am-5pm MST
Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.
Subscribe to our weekly newsletter for industry news and business strategies and tips
Subscribe to our weekly newsletter for industry news and business strategies and tips.