Alternative lending isn’t usually everyone’s go to lending choice when they need a loan, but it should be. Banks are usually a more popular option, but we’re here to tell you why alternative lending will now be your new go-to.
What is Alternative Financing?
Alternative financing is any type of loan that isn’t from a traditional bank. Oftentimes borrowers are scared to use alternative financing options because they are non-traditional and they don’t always understand them. A lot of the time people don’t understand various loan types enough to recognize that they’re probably a great option.
Our Innovative Capital team has the experience to understand your loan needs, and match you with the right lender. One of the many benefits of working with us is that we bring your needs to multiple lenders and leverage their offers to ensure that you get the best deal possible. Not to mention that oftentimes we can complete this process in a fraction of the time as traditional lenders.
Different Types of Alternative Financing
There are a variety of loan types available to borrowers and each one serves different unique needs.
Bridge loan
A bridge loan covers the cost between two transactions. It’s a popular choice for business or real estate funding. Bridge loans help acquire property and once acquired, a different longer-term loan with lower interest can be secured.
Asset-based loan
These loans are backed by an asset rather than by the borrower’s credit score. An asset is something that has positive economic value, such as a building, equipment, etc. If this loan is not repaid, the asset will be taken instead of a credit score being lowered.
Purchase order financing
This type of funding provides the capital to help businesses fund an increase in demand for purchase orders. If a business makes sneakers, and their classic style becomes trendy, an increased demand will cause an increase in purchase orders. This business will need a purchase order fund to receive the funding to output more product and meet the new demand.
Inventory financing
Inventory financing is similar to purchase order financing in the sense that it’s a loan to cover the cost of inventory or supplies. Where they differ is that inventory financing is not for immediate use like purchase order financing. The purpose of inventory financing is to fund supplies that will be sold in the future and is typically stored away for later use.
Factor financing
Factor financing is an exchange of accounts receivable and/or assets for capital. Businesses can leverage their accounts receivable to fund business ventures as an alternative to pulling out a loan.
Equipment financing
As its name suggests, equipment financing loans fund the purchase or refinance of the tools or equipment necessary for a business to run. The physical equipment itself is required to be part of the loan collateral. A growing farm might utilize this type of loan to purchase a new tractor.
Line of credit
A line of credit functions similarly to a credit card. You are granted access to a certain amount of funding, let’s say $10,000, and can withdraw from that funding multiple times as needed within the limit, and pay it back over time with interest. If the amount withdrawn is paid back, the limit is set back and available for future use. Rates are usually lower than credit cards and allow for larger credit limits.
Hard money loan
Hard money loans are an alternative to traditional loans, and more popular for real estate purposes due to their speed to fund and underwriting process.
When should you use alternative lending?
When traditional financing isn’t an option. Alternative lending is an opportunity to find the right loan for you and your business when your needs don’t fit within traditional lending such as:
- Funding Deadline
- Rapidly Growing Business
- Level of risk
Benefits of Alternative Financing
Deals close faster
A smooth process also means deals often close faster. Commercial banks often require lengthy approval processes. Alternative deals may close in as little as a few days.
Flexibility
Alternative financing investors have the autonomy to make their own lending decisions, unlike banks that often function based on set rules and guidelines. As such, a private lender may be more willing to fund a higher risk project as well.
Simplified application process
Traditional banks ask for a vast amount of paperwork, tax documents, business information, and more, which inherently, is why it’s typically a longer process. Alternative financing applications are typically simpler and require less extensive information than traditional financing options.
Alternative funding is our best kept secret. Why? Because often borrowers are unaware of the lending options available to them or are too focus
Often borrowers waste a ton of time at one bank only to eventually be told no. It’s not their fault, they just need to dig through the stats before they know whether it’s possible or not (this could take weeks). At that point though borrowers have invested weeks of their time only to land back at square one. Innovative Capital saves time and reduces the risk of decline by checking all their info FIRST before sending them to a lending resource, be it traditional or alternative.