Decoding Alternative Lenders: Essential Terms You Must Know
Knowledge is power, especially when you are considering which lender is best to help your business grow. Over the past few years, the world of alternative lending has grown rapidly, giving small business owners a plethora of options to choose from. While this increased availability of funds is a boon to small business owners, it also brings with it the time-consuming task of comparing these lenders.
Backd wants to help you cut to the chase when comparing alternative lenders, so we have compiled a list of terms that we believe will help small business owners compare lenders quickly and efficiently. Read on for some of the key terms that you should be familiar with when looking to fund your business with the power of alternative lending, and discover how Backd can help you today!
What is an Alternative Lender?
The term Alternative lender refers to a financial institution or lending platform that provides financing options outside of traditional banking channels. Unlike traditional banks, which have strict lending criteria and extensive regulatory requirements, alternative lenders tend to have more flexible and accessible lending solutions to businesses.
Alternative lenders often leverage technology (like AI) and data-driven approaches to assess creditworthiness and make lending decisions quickly, with pre-approval often coming in just 24 hours. They utilize innovative underwriting models, including automated algorithms and machine learning, to analyze a borrower’s financial information, credit history, and other relevant data points.
Alternative lenders tend to offer a wide range of financing options, from small business loans to merchant cash advances, in addition to other financing products like business lines of credit and short-term working capital advances. They cater to borrowers who may have difficulty obtaining loans from traditional banks due to factors like limited credit history, lower credit scores, or even unconventional business models.
The rise of this type of lender has been heavily driven by the evolving landscape, increasing demand for faster access to capital, and the need to serve underserved or niche markets. While alternative lending can provide more accessible financing options, it is paramount that borrowers are careful to consider the terms, interest rates, fees, and repayment terms offered by lenders, as they can vary greatly in this competitive environment.
It’s worth noting that alternative lenders are subject to regulatory oversight, but they may have different regulatory requirements and compliance standards compared to traditional lenders and banks. Because of this, borrowers should exercise due diligence and research the reputation, credibility, and regulatory compliance of alternative lenders before signing any paperwork. A lot of reputable alternative lenders will proudly display their Trust Pilot reviews on their website, this can be a great resource for trends in sentiment to working with specific lenders.
Alternative Lenders: Terms to Compare
When researching alternative lenders, business owners should compare several key factors to determine which lender will best suit their needs. Here are some things to consider:
Interest rates: Compare the interest rates of different lenders to determine which one offers the most favorable terms for your business.
Fees and charges: Look for any fees or charges that the lender may impose on your agreement, such as application fees, origination fees, or prepayment penalties.
Funding amounts and terms: Consider the funding amounts and repayment terms offered by different lenders. Determine whether the agreement terms are suitable for your business needs and financial situation.
Application process: Evaluate the application process for each lender, including the required documentation and the time it takes to receive approval and funding.
Funding speed: Look for lenders that can provide quick funding, particularly if you need the funds to cover an urgent business expense.
Repayment flexibility: Consider whether the lender offers any repayment flexibility, such as the ability to make early payments without penalty or to extend the repayment period.
Reputation and customer service: Research the lender's reputation and customer service by reading online reviews and talking to other business owners who have worked with the lender.
Credit score requirements: Different lenders may have different credit score requirements. Make sure to check the minimum credit score required by each lender to determine whether you are eligible for their financing options.
Collateral requirements: Some lenders may require collateral to secure funding. Consider whether you have any assets that you could use as collateral and compare the collateral requirements of different lenders.
Industry specialization: Some lenders may specialize in lending to certain industries, such as healthcare or technology. Consider whether the lender has experience working with businesses in your industry.
Repayment schedule: Look at the repayment schedule of each lender to determine the frequency and amount of payments. Make sure the repayment schedule aligns with your business's cash flow.
Approval rate: Check the lender's approval rate to see how likely you are to be approved. This can save you time and effort in the application process.
Availability of additional funding: Consider whether the lender offers additional funding options if you need to borrow more money in the future.
Terms of default: Review the terms of default for each lender, including the consequences of late payments or defaulting on the agreement. Make sure you understand the potential risks of borrowing from each lender.
Alternative Lending: Powered by Backd
Searching for funding can be a large undertaking, but it doesn’t have to be! Alternative lenders are here to help and Backd is at the forefront of ensuring that small and medium-sized businesses are given a chance to get the funding that they need to grow. Backd is in its fifth year of offering flexible capital on a timeline that actually works for your business.
With offerings of $25K up to $2M for a working capital advance with terms of up to 16 months and business lines of credit ranging from $50K to $750K with terms of 6 or 12 months, Backd is here to help you establish the foundation for the growth and expansion of your enterprise.
Backd’s application only takes 3 minutes to complete with funding arriving when you actually need it. Don’t wait to get the funding that your business needs, get Backd and grow today.
