Are nonbank lenders a smart choice to secure funds for start-ups or small business? Analyze the pros and cons of borrowing from nonbank lenders. As small businesses encounter difficulties in securing funds from banks, nonbank lenders offer alternative and flexible loan options such as investors, loans and credit lines. Nonbank lenders are helpful for securing funds when businesses don’t qualify for traditional loans or to reduce exposure from bank funding. A ‘non-bank’ bank is a financial institution that lends money without a full banking license for deposits, checking, or savings services. How to borrow from alternative lenders?
Pros and cons of non-bank lenders
Easy application processes of nonbank lenders ensure streamlined approaches to lending applications, with business information and financial data available, your business loan application takes less than an hour or even 15 minutes. If denied a loan from a bank, try nonbank lenders with flexible requirements, for funding requests for businesses or individuals with low credit ratings. Quick access to funds as application processes are quick not exceeding one day. While banks require explicit spending for allotted loans, nonbanks give borrowers flexibility in loans to help grow the business. Working with nonbank lenders affords cultivation of mutually symbiotic relationships. With timely debt repayment and maintaining a positive relationship, lower interest rates in future are feasible.
Assess Loan Requirements carefully
The lender may go out of business as nonbank lenders are new to the financial industry and the risk of going out of business in a partnership, exists. Entrepreneurs must evaluate lenders about how long they are in business, the backing financial institution, customer reviews, and more details before signing the contract. The concept of early repayment discount rarely exists. Prior to signing any contract, look out for miscellaneous costs like repayment fees and disbursement and request your lender to disclose all fees chargeable. Pay attention to the minimum loan requirement clauses in the loan agreement. For larger start-ups, or small businesses having large cash flows, a minimum loan limit of $50,000 is possible. Much depends on the requirement for funds as the funds required may be for an urgent need for seasonal requirements or a bridging loan for only a temporary or emergent business need. Small start-ups and teams may prefer to avoid taking on too much debt if the need is for a couple of thousand dollars to cover months between expected cash flows. Interest rates with lenders besides banks are higher than from traditional banks and entrepreneurs should have firm control of finances to understand how higher interest rates impact their loan repayment capability if unintended circumstances occur.
Nonbank lenders for small businesses
As nonbank lenders for small businesses increase, the best options for a good fit for your financing needs is Fundbox which offers flexible and fast credit up to $150,000 for small businesses. Their lines of credit and term loans facilitate business growth. Accion focuses on financial inclusion for underserved small businesses, entrepreneurs and communities. Fora Financial sanctions strategic working capital from $5,000 to $750,000 within three days, besides merchant cash advances and small business loans. SBG Funding offers many financing options for small businesses, with small term loans, business credit lines, bridge capital, equipment loans, invoice financing. BlueVine is a technology company with checking, bill-pay, and lending solutions for small businesses.