Shop Intelligently: Non-Traditional Business Loans

Obtaining financing for a new or growing business can be one of the most daunting tasks you will ever undertake. And if you have less than perfect credit, it can be a downright nightmare. Below are some ideas that may help you understand the best way to shop intelligently for your next non-traditional business loan.

Let’s start by defining the terms “traditional” and “non-traditional” business loans. A traditional business loan is a bank loan. Pretty straightforward. These typically require at least 3 years in business, excellent personal and business credit history, and good financials that show a profit. The bad news is that banks reject more than 70% of the applications they get for business loans. Yes, 70%.

A non-traditional business loan, also known as “alternative” financing, is everything else. Unsecured lines of credit, asset-based lending, factoring, hard money loans, merchant cash advances, and equipment loans, to name a few. There are dozens, maybe hundreds, of non-traditional loan types out there and this is where the confusion and frustration of getting a business loan begins.

Every non-traditional funding source has unique requirements, underwriting guidelines, deal structures and rates, while every business comes with a unique story, unique strengths and weaknesses, and specific needs. Matching these two important components properly, so that you end up with the best loan type, structure, and rate would require a deep understanding of, literally, every non-traditional funding source out there! Therein lies the very real issue associated with choosing a non-traditional lender. The truth is that it is virtually impossible to know you made the right choice without an advisor to guide you through the process.

The bottom line is that a business owner has a business to run and cannot devote the maximum time needed to fully research funding options. In most cases, there is a pressing need for funding when the search begins and so time is usually limited. And while I hate to say it, the truth is that this is what most non-traditional funding sources count on. They don’t want you to shop around or get educated on program types. They are counting on your desperation and lack of market awareness. Why? They have a specific program and that is what they want to sell you, because that is all they can sell to you, even if it’s not the best fit for your business.