Again, there are numerous types of alternative business financing and many different entities that offer alternative business financing products. Before deciding on an alternative financing product, its important that you understand what that type of financing entails and whether its a good fit for your business.
1) Lines Of Credit
A line of credit (LOC) is a type of business financing you can get from either a bank or an online lender – but as with term loans, business LOCs are typically easier to get online than from a bank. In case youre not familiar with the term, a line of credit can act as a financial safety net or source of working capital for a business; in effect, you are granted a sum of money from which you can draw at any time (much like a credit card). You are charged interest only on what you borrow.
An online business line of credit is a good alternative financing choice for a business that doesnt require a specific amount of money but wants access to extra funding to cover expenses (such as payroll) during lean times.
2) Online Loans
Online lenders sell business financing products similar to those offered by banks, such as term loans and lines of credit. However, online loans differ from bank loans in a few important ways. Generally, online loans come with less stringent requirements regarding your credit score, time in business, and annual revenue. They are also easier to apply for and take less time to be funded. The only caveat is that in exchange for this convenience and accessibility, online loans usually carry higher interest rates and fees than bank loans do.
Online lenders that offer short-term loans (STLs), in particular, have especially lax requirements and high-interest rates. (More on STLs in a bit).
3) Term Loans
A term loan (also called an “installment loan“) is a traditional form of business financing historically obtained from a bank or credit union. The “term loan” designation simply means that the loan is repaid over a set term (for example, six months or five years) with a fixed or variable interest rate. In fact, this describes the structure of most traditional business loans. However, there is a https://loansolution.com/installment-loans-al/ whole new breed of term loans online.
These days, you can apply for a term loan directly from an online lenders website, using a loan marketplace, or even via a crowdfunding platform (more on crowdfunding later).
Modern SMB term loans are often more user-friendly and customizable compared to the term loans of yore. While they maintain the same basic borrowing and fee structure as a traditional term loan, todays online term loans have built-in flexibility and transparency, allowing you to receive funds and send payments electronically with as little hassle or confusion as possible. Online term loans can also be easy to qualify for, even if you have bad credit.
4) Short-Term Loans
Short-term loans are alternative business loans that you apply for online rather than from a traditional bank or credit union. An STL is a type of online term loan, but in addition to having a shorter repayment term – almost always within a year or sometimes just a few months – short-term loans differ from traditional term loans in several important ways:
- fee structure instead of interest rate
- The lender cares more about your daily cash flow than your credit score
- Faster time to funding (one to two days)
- Higher total loan cost (typically between 10% and 60% of the borrowing amount)