Non-Bank business funding is no longer just for bad credit, or businesses with tax liens, blemished business credit history. Non-Bank business financing has been transformed by financial innovation and technology, which we now know as FINTECH. No Problem! Fintech can solve the problem small businesses have faced when it come to gaining fair access to small business funding.
Non-bank business financing has come to the rescue of many small businesses in need of small business financing. These are fintech finance companies, servicing lenders, rent-a-charter type of set up where the lender is ultimately the servicer so they can pool and securitize these note receivables. This program has become popular with small business owners looking for an instant cash infusion into their cash flow that non-bank funding has made it so easy for small business owners can get almost immediate and unsecured cash advances.
The scope of non-bank business financing is changing day by day, with many more and more non-bank funding options becoming available to business owners. From owner investments to non-bank sources, most businesses seek financing from a variety of sources. A small business, however, is always forced to face challenges when applying for a bank loan, as it may not have the perquisites to qualify for the loan. With these challenges in financing, there has been a growing trend towards “Alternative Funding” or “Non-Bank Financing” as a source for business finance or credit.
Many times a business runs out of funds to meet their immediate expenses. Most of the small companies do not have an established line of credit to fund their expenditure. As such, the Alternative Funding options help to fill this void by giving business owners the financing more quickly than a bank. This is especially true for a new business that might not appeal to a bank on paper. Other reasons why the bank may not finance businesses may be:
The above-mentioned points are only some of the reasons. Most traditional banks decline up to 80% of small business loans and financing as they feel the business is not lucrative enough to pay them back. This is where Alternative Funding or non-bank financing comes in.
Since the non-bank Funding institutes do not follow the traditional methods of picking and choosing who to lend to, they can finance those who have been rejected by the bank. So whether a business needs to launch a new product, spend on marketing, purchase equipment or expand their business, Non-Bank Funding is always there to help.
As mentioned already, seeking Alternative Funding is much easier than getting a loan from a bank. The business still has to prove, however, that they will be able to repay the amount they are borrowing. The qualifications of Alternative Funding are simpler, and there is less paperwork involved as compared to traditional banks.
Most banks prefer to lend if the amount is more than $200,000 because they do not consider a small amount to be worth their time and money. This means a small business may be out of luck if they need a smaller amount. According to National Business Capital, most of the urgent financial requirements are for short-term purposes, where the non-bank business line of credit is the best option.
Alternative funding allows the borrower to make payments based on the total amount that they have borrowed. This makes it easier for small businesses to make ends meet when unexpected expenses pop out of nowhere.
There are not just basic loan options available in a lump sum, but many other lending options a business can use when they choose Alternative Funding.
Once again, the bureaucratic nature of banks means there is not much flexibility when it comes to the rates of interest they are offering. On the other hand, the market for Alternative Funding is quite competitive meaning it drives down the interest rate for borrowers.
Also, since there is a better relationship between the lender and the borrower in Alternative Funding institutes, because they have a more comprehensive profile of the borrower, it helps to manage risks better. This way, the Alternative Funding companies may be able to offer the borrower better rates and terms.
Credit Unions and banks are known for their lengthy approval process. There are many people along the hierarchy who are required to review every application, which may end up taking weeks or even months. In the end, there is no guarantee that the loan would be approved or not. This is a deal-breaker when you are in urgent need of funds. Non-Bank lenders, on the other hand, can sometimes approve loan applications within a few hours, or in a maximum of 24 hours. This is especially true for online Non-Bank Financing companies. Others may take more time, but businesses still get their loan within a week.
Most of the small business loans are to be used for specific purposes for which they are borrowed. For example, if a loan is given to purchase a bulldozer, then the business must buy a bulldozer. On the other hand, the Alternative Funding companies have no such requirements and the business can use the funds borrowed for whichever purpose they see fit.