Denied for a Small Business Loan? Consider Alternative Lenders

What do restaurants, auto parts stores, and essentially all businesses have in common? They can’t survive for long without some combination of cash or financing.


A significant lapse in cash flow, for example, could jeopardize a restaurant’s ability to buy the ingredients it needs to serve the dinner crowd. Retailers may be able to stock some of their shelves on a consignment basis, but they still need to fund their payroll, pay rent, cover operating expenses, or make more ambitious moves, like opening up new locations.


Cash flow can fluctuate unpredictably, especially for startups and small businesses, which is why many small firms rely on credit cards and business loans to keep their doors open.


Loans backed by the Small Business Administration can offer attractive interest rates, but that won’t help if you don’t qualify. Meeting the requirements for a conventional business loan from a traditional lender can be difficult, especially if your business is just starting out or you have a so-so credit history.


The Decline of Small Business Lending


Traditional small business lending contracted sharply following the U.S. financial crisis in 2008. It has been slow to return to pre-crisis levels. Small businesses still find it difficult to get financing from traditional lenders, partly because many community lenders — traditionally a key source of small business financing — shuttered after the crisis.


Nearly 20% of small businesses report being denied credit, according to a survey by the Kauffman Foundation


Those business owners who get approved for a loan or line of credit often don’t receive the full amount that they were seeking. More than half of small businesses that applied last year for a loan of $250,000 or less received a smaller amount, according to the Federal Reserve. 


The typical reasons for being denied financing are low credit scores, too much debt, not enough collateral, insufficient credit history, and weak business performance.


An Attractive Alternative   


Small business owners who have been denied loans from traditional sources may have better luck getting financing from alternative lenders. Many have emerged in the last decade.    


These non-bank, online lending companies offer individuals or small business owners options with less stringent requirements. Many do not require collateral.


These lenders are a big factor in why the number of small businesses that say they’re able to access the capital they need has been rising in recent years, according to the National Small Business Association.   


Business applications to online lending companies have been increasing. Some 32% of applicants turned to online lending in 2018, up from 24% a year earlier, according to the Federal Reserve.   


The U.S. market for alternative business loans is expected to hit $350 billion by 2025, according to research from Balboa Capital.


Easier To Qualify   


Applying for a conventional business loan typically requires firms to have several requirements. Such as a good credit score, providing collateral, and presenting their business plan. In addition to turning over all manner of financial records. Including tax returns and bank statements.    


Alternative lending companies don’t always need to see financial statements and will accept average credit scores. They’re also more likely than traditional lenders to lend smaller amounts. Another perk: Their online application process tends to be faster and easier.


That’s one reason 54% of businesses with riskier credit profiles are more likely to apply to an online lending company than a small bank, according to the Federal Reserve.   


Some Caution Required   


Getting approved for financing by an alternative lending company may be easier, especially if your credit score isn’t stellar. Business owners must weigh that against the possibility they may have to pay higher interest rates and loan fees. Check out this blog for everything you should know about your business credit score.


Many alternative lenders charge significantly higher interest. Consider that annual percentage rates, or APRs, from banks and credit unions, range from about 4% to 13%. Loans from online loan companies can run between 7% to more than 100%. That is depending on the risk, according to financial data firm ValuePenguin.


One reason for the higher APRs is online lenders’ financing terms tend to include sharply higher fees for loan processing.    


Alternative loans can be a lifeline for your business during hard times. Or a supplement to more traditional sources of financing that have fallen short of your needs. But always consider the cost-benefit ratio, especially if the alternative financing being offered is too expensive.    


To ensure you’re getting the best rates available, check out FINSYNC’s lending network. Businesses that use FINSYNC’s integrated accounting and cash flow management software can easily apply for a loan free of charge. Then, immediately receive offers with competitive rates from multiple alternative lenders that are ready to extend their financing. Learn how to apply for business financing with FINSYNC.


How FINSYNC Can Help


FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.

Helping small businesses is our core mission at FINSYNC.

Centralize your accounting, payroll, and cash flow management on our all-in-one platform.

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