In recent years alternative lending sources have become a popular and easy tool for small businesses to take the next step towards their business goals.
Alternative lending sources, such as cash advances, are a perfect alternative financing source for small businesses that want cash flow fast or those that would not qualify for a traditional loan. The funds can be used for any business purpose.
Many businesses choose a cash advance for business upgrades, such as expanding the business, purchasing new equipment, or jumping on a new business opportunity. Cash advances are also beneficial when small companies are experiencing low cash flow but need to pay their staff, suppliers, and creditors on time.
Alternative business funding became prominent in 2008 during the financial crisis, as many small and mid-size businesses had trouble acquiring commercial loans. During the recession, many businesses had poor credit histories and banks denied their loan applications. Alternative lenders erupted to offer loans to companies with poor credit scores, primarily at high interest rates for liability purposes.
Today as the economy has improved, cash advance companies operate in a competitive market and offer low interest rates, though they may be higher than a traditional loan. Providers are not bound by laws that regulate lenders and interest rates, but the industry has begun to set standards and has become self-regulated.
Here’s why so many entrepreneurs are using alternative business financing to benefit their business:
Quick, easy application process. The application process for cash advances is straightforward, quick, and easy. Lenders do not look at a business’s credit report, instead they look at monthly credit sales and how long a business has been in operation. Many alternative lenders can process the loan application in as little as five minutes or that same day, while commercial loan applications can take months to process. Many providers also offer a free, no personal guarantee application process.
Get cash fast. The best feature of alternative business financing is businesses can get cash fast. Once an application is approved, depending on the amount businesses can get the cash wired to their bank account in as little as an hour, that same day, or in a few days. Whether a business needs to quickly jump on a new business opportunity or to pay off a creditor, it will have access to money fast.
High approval rate. Whereas some small businesses would have a tough time qualifying for a commercial loan, cash advances have a high acceptance rate. While commercial loan providers access a business’s credit history and collateral, alternative lenders look only at business performance. Generally the requirements for qualifying for a cash advance are having minimum monthly revenue of $5,000 and many approve businesses that have been in operation for under a year. Typically a business has to have been operating for about nine months, but that requirement varies by provider.
Short repayment cycle. Cash advances have a short term repayment cycle, typically lasting from 6 to 12 months. The repayment is monthly, and the monthly amount depends on how much sales volume the business brought in for that month. The providers will get a certain percentage of the credit and debit card sales each month, so the collection amounts will fluctuate. Essentially the provider gets paid when the business gets paid, and the repayment process will not disrupt a business’s cash flow during seasonably slow months.
Bottom line: Alternative financing offers a straightforward application process, flexible funding options, and ongoing customer support to meet your business needs.
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