Traditional Bank Lending vs Alternative Funding

Whichever business industry you may be in, the new year could signify the opportunity to opt for outside sourcing of your company financing. Perhaps 2017 was a difficult year and you’ve run into a cash flow problem and need a small business loan or line of credit to tide you over. Alternatively, you may have the idea to make 2018 a year of expansion – could alternative funding be the way forward?

While the norm for small business owners maybe turning to local banks or credit unions for funding, news of the decline in the bank lending has seen an increase in the alternative finance market.

In addition, with some business owners not meeting rigorous borrowing requirements and the potential need funds to be accessed quicker than that application process normally allows.

Where as alternative funding can be an ideal preference, due to a number of factors being: speed, flexibility and competitive pricing. Nevertheless, it’s important to understand how these new forms of financing are different from traditional bank loans you may be accustomed to.

So What Are The Differences?
Intriguing Interest

While your Bank may offer the lowest interest rates for small business loans, they can also make the coinage from a variety of products, which means they aren’t as focused on lending margins. Where as, alternative lending can be made up of investors or credit facilities to issue loans, which raises their borrowing costs and the resulting interest rates.

Time Is Money…

Then comes the time period involved, applying for a loan from a traditional bank can be a lengthy process. After collecting and submitting your documents, you may need to schedule a phone call or go to a local branch to discuss the application and your qualifications in person. It could take three to four weeks to hear back, and even longer to receive the funds. However, many alternative lenders have streamlined the application and approval process to make it easier. Submitting your requirement online enables you to connect your accounting or invoicing software – once this is approved, funds should be available within a few days.

Qualifying For The Loan

Depending on your finance requirement, traditional bank loans may have stricter requirements than alternative online lenders. For example, many banks will only lend to businesses that have been open for at least two years. You may also have to submit a formal business plan, have a good personal credit score, and show that your business has collateral (such as equipment, supplies, or invoices) to qualify. Alternative lenders often enables you to make capital available for the wider variety of business owners out there. There may be a minimum credit score, but it’s often lower than the bank’s requirement. Alternative lenders also might not ask for a business plan and only require you to have been in business for several months.

If you’re favouring the alternative funding option, then you’re not alone. Many find the option is a quick and simple application process, eradicating the humdrum of bank qualifications – so perhaps it’s time you consider an alternative lender!

Aurora Capital are funding consultants, assisting UK businesses raise the necessary capital they require to facilitate future plans in the company. We have access to 15+ different lenders in a range of different lending markets, enabling us to source the most competitive solutions for your business. Not only will we strive to source the most competitive offers, but we can advise you on the best product for your business moving forward.

If you would like to get in touch and find out more information on alternative funding, please call the team on 01371 870 815 or email info@auroracapital.co.uk – we’re more than happy to help!