Can’t Get a Loan from a Bank? Here are Alternative Funding Options

Can't Get a Loan from a Bank? Here are Alternative Funding Options

Securing funds to either start or grow business was once every entrepreneur’s worst nightmare. In the past, big banks and credit unions often rejected loan applications, leaving business owners with the only option of borrowing from friends and family or borrowing against receivables.

A lot has, of course, changed mainly because business owners today have more options than before. Alternative lenders and institutional investors have made it easier for entrepreneurs to access funds and grow.

For a small business owner, it pays to understand how institutional lenders and alternative lenders differ and the best options available to get funds.

Small Business Funding Options

Alternative Lenders

Alternative lending took off during the 2008 financial crisis when big banks backed out of small business funding. At that time, online lenders stepped in to fill the vacuum and assist small businesses. They created web-based lending platforms that facilitated a faster loan application process and provided the much-needed respite to small businesses.

Today, alternative lenders are the new normal for small businesses looking for funds to meet their financing needs. Some of the well-known alternative lenders include Kabbage, OnDeck and CAN Capital.

There are four main types of alternative lending options available to small businesses. These are:

  • A line of credit that provides access to a set amount of cash that’s mostly used to meet short-term financing needs.
  • A term loan that allows business owners to borrow and repay the loan amount in about four or five years.
  • Invoice factoring that helps businesses deal with unpaid invoices.
  • Merchant cash advances that help businesses get an advance on future credit card or debit card sales.

Pros and Cons of Alternative Lending

Alternative lending is a good option when you are looking for funds to address an urgent business need. To give an example, if there is a plumbing issue that needs to be fixed immediately, you can use alternative lending options to secure funds in no time.

Another big advantage of alternative sources of financing for small business is simplicity. Unlike big banks, alternative lenders require fewer documents to process loan requests. That’s because for the alternative lenders, the main focus is whether you have the cash flow to repay the loan.

Alternative lenders also offer longer-term loans to invest in your growth. For example, if you want to recruit more workers or open a new store, you can opt for alternative lending options.

For all the benefits associated with alternative lending options, it’s important for businesses to know that the interest rates are extremely high. Most alternative lenders offer business loans with double-digit, sometimes even triple-digit, rates. For a small business owner, such steep rates are not always the best option.

Institutional Lenders

Institutional lenders refer to hedge funds, family funds, insurance companies and other non-bank institutions. These lenders have slowly but steadily emerged as important players in the small business credit marketplace. Some of the well-known institutional lenders include StreetShares, Funding Circle and Kickfurther.

An increasing number of small businesses are opting for institutional lending options because approval rates are high. Institutional lenders are, in fact, surpassing alternative lenders, including merchant cash advance companies and other non-bank finance companies.

In July last year, institutional lenders approved 61.7 percent of small business loans, up from 61.4 percent in June.

Pros and Cons of Institutional Lending

Because institutional lenders invest heavily in technology, they act promptly and approve loans faster than alternative lenders and big banks.

“These pools of money have never been available for small businesses,” Biz2Credit CEO and co-founder Rohit Arora tells

For new entrepreneurs, institutional lending is a feasible option because the interest rates are considerably low. That’s because institutional lenders usually have access to a comprehensive profile of businesses that approach them for loans.

Moreover, institutional lenders don’t ask for any specific collateral to approve loans. They mostly require a personal guarantee and may place a lien on your business assets.

On the flip side however, institutional lenders place some very specific requirements to qualify for loan approvals. Further, these loans have typical terms of 1-5 years or even a shorter span. This means they are not ideal for businesses looking for big investments.

How to Seek Small Business Loans from Alternative and Institutional Lenders

To qualify for a loan or small business line of credit, it’s always advisable to know the right way to go about it.

While it is true that your chances of getting approved by an institutional or alternative lender are greater than big banks, it’s important to make note of a few things to ensure you qualify.

To begin with, you should know that unlike traditional lenders, alternative and institutional lenders depend on technology to determine whether or not you can repay the loan amount. They use sophisticated software tools and data metrics, including social media interactions to assess businesses.

If you have just started out, you probably won’t qualify for a big loan. Conversely, if your business is up and running and you can show a good track record of revenue performance, you will find it easier to secure funds.

What’s worth noting is that you need a good business plan in place to increase your chances of qualifying for a loan. It’s also advisable to know which lender is your best option before you approach them. For example, Kickfurther is ideal for small businesses looking for inventory financing. There are similar lenders who specialize in real estate business, purchase order financing and other kinds of small business loans.

It’s important to maintain a good credit score because most alternative and institutional lenders carry out credit checks to ascertain a customer’s credit worthiness.

Another good option for small businesses is to consider collaborative lending opportunities. Banks like JP Morgan Chase are partnering with alternative lenders to offer loans customized to the needs of business owners. In certain instances, such options would make more business sense.

Armed with enough information and insight, you can easily secure funds without borrowing from your IRA or approaching big banks and community banks.

Loans Photo via Shutterstock


How to Gather Small Business Loan Documents: A List of What You Need

How to Gather Small Business Loan Documents: A List of What You Need

Gathering documents while applying for a small business loan is often a hassle. Yet there’s no way to avoid loan documents when you’re trying to secure funds.

The best way to minimize the hassle is to be prepared and understand how to value a small business. In other words, know all the loan documents your lender is likely to ask for when you approach them.

To make it simple for you, here’s a list of all the loan documents you need when you approach a lender so that you don’t have to find a documentation specialist for the job.

The List of Business Loan Documents You’ll Need

SBA 7(a) Loans/Bank Loans

SBA’s 7(a) Loan Program is one of the most popular borrowing options for small businesses. It’s worth noting that SBA does not extend loans itself. Rather it guarantees small business loans made by participating lending institutions. (As a result, much of the information you’ll need is the same documentation you’d need to apply for a loan from a more traditional lender.)

What makes SBA loans attractive to many small businesses is the low interest rates, but it also involves lengthy paperwork.

Once you have decided to apply for an SBA loan, you will have to gather all your documents. The process will then begin with your local lender, working within the SBA guidelines.

Here are all the documents you will need to submit.

SBA Loan Application: This is the first thing you will have to complete to process your request. You can find the most current form here (PDF).

Personal Background and Financial Statement: To evaluate your eligibility, the SBA requires you to complete a few forms where you will have to provide personal background and financial information.

Business Financial Statements: You must also be able to show that you can repay the loan. For that, you need to provide the following financial statements: Profit and Loss Statement and Projected Financial Statements.

Ownership and Affiliates: You must include a list of names and addresses of any subsidiaries as well as affiliates. These may include concerns in which you hold a controlling interest and other concerns that may be affiliated by franchise, proposed merger, stock ownership or otherwise with you.

Business Certificate or License: Your original business license or certificate of doing business is also needed. If your business is a corporation, you need to stamp your corporate seal on the application form.

Loan Application History: You should include records of any loans you may have applied for in the past.

Income Tax Returns: Add signed personal and business federal tax returns of your business’ principals for the last three years.

Résumés: Also include personal résumés for each principal.

Business Overview and History: Provide a short history of the business and its challenges. Add an explanation of why you need an SBA loan for your business.

Business Lease: Provide a copy of your business lease, or a note from your landlord.

For Purchasing an Existing Business: Provide the following information: 1) current balance sheet and P&L statement of business to be bought, 2) last two years federal income tax returns, 3) proposed Bill of Sale including Terms of Sale, 4) asking price with schedule of inventory, machinery and equipment, furniture and fixtures.

Alternative Lenders

If your business does not meet a traditional bank’s financing requirements and you are wondering how to get a business loan, you may want to consider alternative lenders.

Alternative lenders provide financing to even those small businesses that haven’t been around for a long time. And they have a less paperwork-intensive application process that can be completed online.

Here are the documents that most alternative lenders are going to ask you to submit.

Tax Returns: Make sure you submit the last three years of signed personal and business federal income tax returns.

Bank Statements: Submit three most recent bank statements for your business and personal accounts.

Cash Flow Statements: Include your balance sheet, cash flow statements and profit-and-loss statements.

Personal Identification: Includes social security, driver’s license or any such current government-issued photo ID.

Business Lease: Provide a copy of your business lease, or a note from your landlord.

Peer-to-Peer (P2P) Lending

P2P lenders help businesses by connecting capital from retail and institutional investors via platforms such as Funding Circle, Prosper and Lending Club. Over the years, P2P lending has become a popular source of funding for a large number of small businesses.

Here are the documents that you will have to submit when you approach a P2P lender.

ID Documents: Make sure you get your ID documents in place to set up direct credit as soon as you can.

Proof of Social Security: Provide a copy of your Social Security Award Letter or Form SSA-1099 for the last tax year.

Proof of Pension or Annuity Income: If you receive income from a pension or annuity, include a copy of your award letter or most recent statement.

Online Marketplaces

These days, a number of online marketplaces have become a popular source of small business financing. These marketplaces operate like exchanges, centralizing and streamlining the loan application process. They connect businesses to a range of traditional and alternative lenders. Some of the well-known players are Fundera and Biz2Credit.

Some of the documents that you should provide when you approach an online marketplace for funding include the following:

Personal Background: Submit your ID and address proofs along with the proof of your professional qualification.

Income Tax Returns: Include the personal and business federal tax returns of your business’ principals for the last three years.

Signed Application: Provide all the basic information about yourself and your business.

Bank Account Statements: Submit six most recent bank statements for your business and personal accounts.

Business Lease: Provide a copy of your business lease, or a note from your landlord.

Paperwork may sound like a lot of work, but preparing in advance can actually help save time. Just make a quick checklist of all the documents you need to submit before you begin the process. You may also want to speak to a representative to gather and organize your papers on time. Once you have prepared yourself, it will be easy to complete the work.

Ducks in a Row Photo via Shutterstock


Kingfisher airlines saga: SFIO seeks loan info from banks

Beleaguered liquor baron Vijay Mallya and Kingfisher Airlines owe over Rs9,000 crore, including interest, to a consortium of 17 lenders led by State Bank of India. Mallya saga: SFIO seeks loan details from banks

Beleaguered liquor baron Vijay Mallya and Kingfisher airlines owe over Rs9,000 crore, including hobby, to a consortium of 17 lenders led by using kingdom financial institution of India. Mallya saga: SFIO seeksmortgage info from banks
Mumbai: The critical Fraud research office (SFIO), the investigative employer for white collar crimes, has sought loan info from lenders to the Vijay Mallya-owned defunct Kingfisher airways.

“Banks had been asked to provide all of the information of the loans given to the Kingfisher airways. Theenterprise desires to recognise whether all of the procedures had been observed by the lenders at the same time as giving loans to the airways,” a banking official said, adding the information have beenfurnished.

As a multi-disciplinary employer, the SFIO probes cases of financial frauds which are stated it by way ofthe company affairs ministry.

in keeping with a banker, by way of asking these details, the SFIO is probably looking to ascertainwhether or no longer there have been any lapses on part of the lenders in the entire Kingfisher airwaysloan saga. remaining month, company affairs minister Arun Jaitley, in a written reply to the Rajya Sabha, had said the SFIO become investigating the lengthy-grounded Kingfisher airways for alleged financialirregularities.

“The SFIO is currently investigating Kingfisher airways. for the reason that probe is in development, nofeedback are offered at this level,” Jaitley had knowledgeable Parliament in a written respond.

Beleaguered liquor baron Mallya and Kingfisher airways owe over Rs.9,000 crore, which includes interest, to a consortium of 17 lenders led by using nation bank of India. other lenders include Punjabcountrywide financial institution, financial institution of Baroda, Canara bank, bank of India, Federalfinancial institution, Uco financial institution, United bank of India and Dena financial institution,amongst others.

On 14 June, a special Prevention of money Laundering Act (PMLA) court in Mumbai had declared Mallya a proclaimed culprit in a mortgage default case. The court docket issued the order on a plea by way of the Enforcement Directorate (ED), which has been asking Mallya to enroll in investigations “in individual” in its PMLA probe in opposition to him and others in the Rs.900 crore alleged loan fraud concerning IDBIfinancial institution.

On 11 June, the ED had attached homes really worth Rs.1,411 crore of Mallya and UB Ltd in connection with its money laundering probe within the IDBI bank mortgage default case. The property broughtunder the “provisional attachment” order include financial institution stability of Rs.34 crore, a flat everyin Bengaluru and Mumbai (2,291 sqft and 1,three hundred sqft respectively), an business plot in Chennai (4.5 acres), a espresso plantation in Coorg (28.seventy five acres) and home and commercial areas in UBmetropolis and the Kingfisher Tower in Bengaluru (84,0279 squareft).

Mallya had left the u . s . to Brtiain on 2 March the use of his diplomatic passport and London has grew to become down New Delhi’s request to deport him.

pinnacle 15 Small commercial enterprise loan errors you may Make

loan mistakes (1)

Small organizations have historically had a hard time getting access to more capital — i.e. throughsmall enterprise loans — from banks, huge and small. And financial realities and forecasts dictate,normally, simply how beneficiant those institutions are at any given time.
still, small businesses aren’t exactly being choked off entirely from getting authorized. And themarketplace has been enhancing for small companies seeking loans. however in order to get a lender to take a flyer to your small enterprise, it’s quality no longer to make a rookie mistake in your way to getting that loan approval.
below are some of the pinnacle small enterprise loan errors you could make.
Don’t Make those Small commercial enterprise mortgage mistakes
1. Maxing Out credit cards
Maxing out your credit score limit is a awful concept in case you wish to keep to get business financing. Piling up big fees for your personal or business credit score playing cards best leads to excessivehobby bills.
And not being capable of pay lower back your credit score card payments will handiest serve to harmyour private and commercial enterprise credit score score. That’s going to make it very hard to everdiscover a actual mortgage.
2. Ignoring Requests from the Lender
Be prepared whilst looking for extra capital to your enterprise. in the course of the loan utilityprocedure, your prospective lender may also ask you for a whole lot of facts, a number of which you cannow not have on the equipped. It’s pleasant to be prepared for any questions your lender might ask and to avoid making them wait too long on your solution.
three. Ignoring the fine Print
You’re going to want to read the best print on any mortgage provide you’re thinking about. Failing tostudy the high-quality print is one of the most commonplace small business mortgage mistakes, and can show very highly-priced ultimately.
4. Borrowing to Have greater coins accessible
in case you’re extreme about obtaining a small commercial enterprise loan, know that this ought to notbe only for the purposes of getting a protection net. Having a large sum sitting inside the bank can betempting. Frivolous spending may want to quickly drain your finances and make any preliminary goals you had for using that money not possible.
five. Failing to shop round
practice the equal depth for your small commercial enterprise mortgage seek as you’ll to looking forthe proper vendor or an appropriate product. buying round gives you the opportunity to compareavailable offers. Who’s imparting the most competitive interest charge? Who has the exceptionalterms?
There are more lenders to be had to small companies in recent times, and no longer all are createdidentical. Failing to store round is doing your small business a disservice.
6. missing payments
now not handiest will overdue bills look awful together with your lender. they will start to accrueconsequences and fees. soon, the payments you’ll be making on your mortgage will begin multiplying.
And,of path, failing to make mortgage payments on time could bog down any possibilities of yourenterprise getting access to extra capital within the destiny.
7. Letting personal credit score rankings Drop
Getting your small commercial enterprise a mortgage and retaining a very good enterprise credit ratingare each truly crucial. however don’t permit your personal credit score score get broken within theintervening time. the use of non-public cash to fulfill commercial enterprise costs may want to harmyour non-public credit rating inside the procedure.
if you’re permitting your non-public score to dip whilst applying for a small business loan, it may hurtyour capability to get permitted or to getting a super loan provide.
eight. no longer knowing What You want
earlier than you select up a phone and speak to a financial institution or other lender or maybe set foot in a loan workplace, know what you need. perform a little exhaustive searches on the net to discoverwhat varieties of loans are available on your commercial enterprise
9. seeking a loan in an Emergency
Getting accepted for a revolving line of credit now could prevent from being pressured to make adetermined application for a loan within the face of an emergency.
as an example, if your enterprise property is seriously broken in a typhoon and also you’re going toneed heaps of greenbacks to update the roof, it’s high-quality to have geared up get right of entry to to a line of credit in preference to going through the laborious procedure of applying for a loan — andrisk not getting permittedeven as your enterprise suffers.
A line of credit, authorised before any capability disaster or emergency, could permit you to beequipped to behave right now while confronted with any such state of affairs.
10. Having No Plan for the money
first of all, the would-be lender might be going to ask what the cause of the mortgage is. And at that point — and honestly earlier than then — you should have a clean answer and a concise plan for themortgage cash you’re looking for.
If it’s a selection venture, truely element the plan and present it to a potential lender.
the shortage of a plan will really go away your lender questioning whether to present you the mortgageat all.
eleven. Having high Turnover
If lenders investigate the steadiness of your agency at the time you’re applying for a mortgage, when you consider that turnover is excessive could ship up the proverbial purple flags.
indeed, stability inside your organisation on the time of your software is a key thing to gettingapproved.
12. preserving Messy Books
Accounting, in particular for the smallest of small companies, has a tendency to be a task that receivesremove too long. This ends in maintaining slipshod records riddled with inaccuracies.
It’s hard to enter a bank searching for a mortgage in case you don’t even recognise the genuinefinancial fame of your enterprise. If accounting is turning into too much of a chore, test out one of themore moderen cloud-primarily based accounting apps that combine with a number of differentequipment you may already be using at your enterprise.
If you may’t keep your contemporary funds so as, your lender ought to have critical doubtsapproximately providing you with extra.
thirteen. Having No stop recreation
Even in case you’ve simply established how you intend to spend the more capital you’re seeking, a lender goes to be extra willing to approve that request in the event that they’re assured the funding is going to a worthwhile effort.
on your loan application process, make sure to spell out how the loan will benefit your commercial enterprise and improve its monetary status. this can show you’re in all likelihood so that it will payreturned the money you’re borrowing — and in a well timed way as well.
14. making use of for another credit score Card
just because it’s a bad concept to benefit funding by using putting a huge cost on an exitingcommercial enterprise credit score card, it’s also poor judgment to apply for a 2nd credit card in lieu of getting a loan.
Maxing out a unmarried private or business credit card to cowl huge enterprise fees is bad enough. Getting any other card and doing the same will placed your commercial enterprise in even more financialproblem.
15. Ignoring opportunity creditors
Banks big and small aren’t the only sources of capital for small agencies these days. There’s a rise in theavailability of small business capital from so-known as alternative creditors, credit score unions, and on line lending assets.
There are a developing quantity of these assets and many goal small corporations specifically. Ofpath, you will want to very well take a look at their reputations and the phrases of the loans they’reproviding earlier than pronouncing sure.