A coronavirus pandemic is underway, which has caused a major recession and the closure of many businesses. That is why the topics related to financing the businesses are in the forefront. It wasn’t so popular topic since the 2008 global economic crisis. But we must say that problems are not the only reason why you could look for alternative sources of funding. You may be one of the few lucky ones whose business flourishes during a pandemic because you do business online for example. Then you need additional financial resources to be able to properly support the growth of your company. However, it is increasingly difficult to get a loan from a bank. This is the pattern we have noticed since the crisis of 2008, that the banks are very reluctant to approve a loan for small and medium enterprises, and the situation has worsened during this year with all the problems that have befallen humanity. That is why more and more people are turning to alternative financing, and if you are one of them, then you are certainly interested in finding out all the pros and cons.
What is it?
Just before we move on to pros and cons, a very brief explanation of what exactly this is if the term is not entirely clear to you. To make it as simple as possible, it is a loan that you get from someone other than the bank. The documentation required are usually different, as do some other things. For example, many more things can serve as collateral. This provides many advantages, but also certain disadvantages that we will analyze in the rest of the article.
1. Incomparably faster approval
When you apply at the bank, it is not uncommon to wait a few weeks (in some cases even few months) for your application to be approved or rejected. Banks check many more different parameters and also have incomparably more clients. So get ready to wait. On the other hand, alternative options, and by that we mean other lenders will usually inform you about the outcome of your request after one or two working days and in the same amount of time the money will be in your possession. This is a very important factor if you are in a hurry. This can often be the deciding factor between success and failure. That is why this is one of the biggest pros.
2. Easy application process
If you have ever submitted an application to the bank, you surely know how long and laborious the process is. On the other hand, everything here is very simple. You will only need to provide basic personal and business information. Everything will be over in a maximum of twenty minutes. You can also apply online. And that’s a big plus because you don’t have to waste time going to their office. Also, newer generations are used to the fact that absolutely everything can be done online, so this is no different. If you care about data security, don’t worry. Experts from Vaidoo claim that data security is 100%
3. Credit rating is not that important
You probably already know that if you do not have a good credit rating, banks will never grant you a loan. In order for your credit rating to be good, you need to pay each installment on time and the like for years. And just one mistake will significantly reduce it. That’s why alternative options are good for you, because lenders don’t usually consider a credit rating unless it is very bad. But even then there is a great possibility that they will grant you a loan, only with a higher interest rate. This way you will definitely provide yourself with the funds you need.
When we say flexibility, we mean several things compared to the traditional one. As we have already said, different things are used as collateral and lenders accept many more different pledges than banks. This can be very important if you do not have something conventional for collateral at that time. Also, you can spend the money as you wish. While this may seem logical to you, banks ask you to state what you will spend the money on and to stick to it. In case you spend it on something else, you will be penalized. That is why this is a big advantage, because as a small business owner, you may need money for several different things.
5. Higher interest rates
You must have been very happy because the lender is looking for a lower value pledge, not checking your credit rating or your company’s finances in such detail. And that is why your request is approved very quickly, and the money is in your account. Yet nothing can be perfect. Precisely because of all these benefits, because of which he puts himself at risk, the lender imposes higher interest rates. So carefully analyze the interest rate and how much your monthly installment will be because it can be too big for your budget.
6. You may not get the amount you want
You are likely to encounter this problem. There are two types of lenders. Some do not want to approve small amounts, while others do not want to approve large amounts. What are the reasons? Well, those who do not want to approve small sums, think that they do not have enough interest to do that and that is why they only offer you several tens of thousands of dollars. While this is an amount that can significantly improve your business, it can also lead you to bankruptcy. On the other hand, there are lenders who will not give you a large sum of money even if you ask for it. They find it too risky to grant you big money because they are not sure if you will be able to return it.
7. Short repayment period
While banks may grant you a repayment period of several decades, this will not happen in this case. This would be too much of a risk for them and that is why you will face a short repayment period, which can be a big burden for you. Also, you probably won’t get a discount for early payment.
As you can conclude, there is a lot of pros, but also a few cons. Whether this is the right option for you depends solely on your needs. And of course, you need to find respectable lenders.