Alternative lenders offer a streamlined loan process that allows businesses to access funds more quickly and without the strict qualifications required by banks. Plus, alternative lending opens up a wide variety of loan types that traditional banks and credit unions don’t offer.
Compare some of the best alternative lending options to find one that’s right for your business.
Finder’s business loan experts analyzed dozens of alternative lenders offering multiple loan types. We ultimately chose lenders with competitive rates, fast funding, flexible loan terms and a variety of loan types.
Some of the criteria we used to evaluate lenders include:
Interest rates
Additional fees
Loan amounts
Loan terms
Repayment plans
Turnaround times
Credit score requirements
Time in business requirements
Revenue requirements
Reputation of the lender
How to compare alternative business loans
Consider these factors when choosing an alternative business loan lender.
Rates. You’ll find a wide range of interest rates between lenders — or fees, depending on the loan type — so be sure to explore the best deals on business loans.
Additional fees. Some alternative lenders charge fees in addition to interest, which adds to the loan’s cost. To save money, you may want to seek out loans with minimal fees.
Turnaround times. By and large, alternative loans have relatively quick funding — some as soon as the same day — but other options may take a little longer. No doc loans tend to offer the quickest turnaround since they further simplify the application process.
Loan terms. In general, alternative loans have shorter terms than bank loans, but some may offer terms of up to 10 years.
Repayment schedules. Certain loan types in this space may require weekly or even daily repayments. Carefully consider whether your budget can handle a fairly rigorous repayment schedule.
Lender requirements. Alternative business loan lenders typically have more lenient requirements to qualify. But it’s still a good idea to research the minimum credit score, revenue and time-in-business requirements to make sure you fit the criteria.
What is an alternative business loan and how does it work?
Alternative loans are business loans offered outside of traditional banks or credit unions. They’re usually online-only lenders, which means faster funding and easier qualification, though interest rates can be higher than what a bank might offer.
These lenders offer familiar products like term loans and business lines of credit, along with more flexible options such as:
Invoice factoring
Merchant cash advances
Crowdfunding
Like bank loans, alternative loans can be secured or unsecured. You typically complete the applications online and upload documents electronically. Some lenders may request access to your bank account to verify revenue, cutting down on paperwork and speeding up decisions.
Repayment works similarly to traditional loans with interest and fees, but many alternative lenders require automatic weekly or daily payments, especially for short-term financing.
Perks of alternative business loans
Here are a few benefits of going with an alternative business loan:
Fast and easy application process. Compared to more traditional lenders, alternative loans and lenders typically offer a much easier and faster application that you can complete online.
More lenient eligibility requirements. Alternative business lenders typically consider other eligibility factors and have less strict requirements to qualify, such as lower time in business or credit score requirements compared to banks and traditional loans.
Funding as soon as the same day. Because they generally operate online and often use underwriting algorithms to determine approval, these loans often offer funds much faster.
Drawbacks of alternative business loans
Weigh the pitfalls carefully before going with an alternative business loan:
May be more expensive. This drawback is by far the biggest for alternative loans and lenders. Because they offer more lenient requirements, speedy access and convenience, they often buffer the added risk with higher rates.
Shorter terms, generally. Alternative types of business loans tend to be short-term loans, so you’ll have less time to pay down your balance.
May require daily or weekly repayments. Many types of alternative loans, such as revenue-based loans, require more frequent repayments than the more traditional monthly payment.
Not all loan options build business credit. Providers that offer specific types of alternative loans, such as merchant cash advances or invoice factoring, typically don’t report your payment history, so it won’t help you build business credit.
Limited customer support. Depending on which lender you work with, you may have limited access to customer support, especially with smaller alternative lenders. Alternatively, more traditional lenders, like banks and credit unions, generally have brick-and-mortar locations where you can get in-person assistance when needed.
Compare other alternative business loans
Consider these lenders that also offer alternative business loans at competitive rates and for a range of credit types.
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How we picked these
What is the Finder Score?
The Finder Score crunches 12+ types of business loans across 35+ lenders. It takes into account the product's interest rate, fees and features, as well as the type of loan eg investor, variable, fixed rate - this gives you a simple score out of 10.
To provide a Score, we compare like-for-like loans. So if you're comparing the best business loans for startups loans, you can see how each business loan stacks up against other business loans with the same borrower type, rate type and repayment type.
Retail businesses or others that have a lot of credit card sales.
How to qualify for an alternative business loan
Alternative lenders typically look at your credit score, monthly or annual revenue and how long you’ve been in business.
Revenue. Most lenders want to see at least $10,000 in monthly revenue, but some may require more or less than that.
Credit score. Alternative lenders typically have more lenient credit requirements than banks, but most require at least a 600 or higher. However, some lenders will accept lower scores, and certain loans require no credit check at all.
Time in business. In most cases, you’ll need to be in business for at least six months to a year to qualify for alternative loans, but some lenders may be more flexible if you meet other criteria.
Business checking account. You need an active business checking account to qualify for alternative business loans. Lenders typically require it to verify your banking activity, deposit your loan proceeds or take out automatic repayments.
How to apply for an alternative business loan
Doing your research and coming to the table prepared will help ensure your success in achieving loan approval.
Determine your needs. Define your purpose for the loan and how much you’ll need to achieve that goal.
Assess your budget. Calculating your loan payments can help you decide the loan term that makes the most sense for your budget.
Check your credit. Knowing your credit score can help guide you toward lenders that work with borrowers in your credit range.
Compare lenders. Consider interest rates, fees and loan terms from multiple lenders to find the best deal. You should also research the lender’s requirements to make sure you meet its minimum qualifications.
Gather your documents. Alternative lenders may not require as much documentation as traditional banks, but you should still be prepared to submit tax returns, bank statements or other financial documents.
Apply. Once you’ve found the right lender, you’ll typically apply online and submit the required documents. With alternative loans, you could receive a decision in just a few minutes or hours and funding within a day or two.
Frequently asked questions
The minimum credit score to qualify depends on the loan type. For lending options like term loans and business lines of credit, you may need a credit score of at least 600 or more to qualify. Other alternative loans, such as MCAs, invoice financing or invoice factoring, may not consider your score if you meet other requirements.
If you want to get the best rate — and your business meets the required qualifications — going to a bank for a loan could make more sense. You may also want to avoid alternative lenders if you prefer a more personalized experience because they operate almost entirely online.
Many alternative lenders consider income from self-employment when determining loan approval. But you'll still need to prove your income and may have to submit a few years of tax returns to qualify and meet other criteria. If you have trouble qualifying for a business loan, it might be easier to get a personal loan to fund your business instead.
Lacey Stark is a freelance personal finance writer for Finder, specializing
in banking, loans, investing, estate planning, and more. She has 20
years of experience writing and editing for magazines, newspapers, and
online publications. A word nerd from childhood, Lacey officially got her
start reporting on live sporting events and moved on to cover topics
such as construction, technology, and travel before finding her niche in
personal finance. Originally from New England, she received her
bachelor’s degree from the University of Denver and completed a
postgraduate journalism program at Metropolitan State University also
in Denver. She currently lives in Chicagoland with her dog Chunk and
likes to read and play golf.
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