If you are a business owner struggling to get funding from a traditional lender, alternative lenders might offer the perfect solution. Just read our recent post about merchant cash advance loans. They allow business owners to receive money in just a few days and pay it back in payments deducted from their revenue over a fixed period.
So there is no need to be discouraged if traditional lenders are not working for you. There are a bevy of alternative lenders, each with unique business models designed to accommodate and fund businesses that may not qualify for traditional loans.
Nonbank loans, like On Deck or Kabbage, use lending models that borrow money from established corporations or banks and lend to small businesses. These lenders are more apt to take risks that banks do not and allow business owners to avoid the traditional lending process and get cash quickly.
But these alternative lending solutions come at a cost, and business owners should be aware of the inflated interest rates they could be charged. In his recent blog for the New York Times, Ami Kassar, founder of MultiFunding and panelist speaker at Access to Capital: Money to Mainstreet in Chicago, critiques alternative lenders who trap desperate business owners into high annual percentage rates, which, in certain cases, can exceed 100 percent.
Alternative lenders are not subject to regulations and, therefore, have minimal accountability when lending to businesses at inflated interest rates. This information is not meant to scare business owners away from alternative lenders, but encourage them to proceed with caution and take advantage of these lending solutions without being taken advantage of.
Like any loan, pay attention to what you are signing up for. While the interest rate may seem reasonable, when restricted to a short payback period, the cost may be double what you realized, potentially forcing a loan renewal before it is paid off.
So before you get suckered into a loan program that seems too-good-to-be-true, do your homework and understand all the terms of your agreement. Alternative lenders take increased risks and are entitled to higher interest rates, but until the booming-business that is alternative lending is subject to regulation, it is the business owner’s responsibility to research to find their best lending solution.