How Do Bad Credit Loans Affect Small Businesses? Pt 2
Alternative Paths for Bad Credit Owners
Besides traditional bank loans, that wide range of loans options which is available to consumers and business owners alike, is branded as alternative lending. Unlike traditional lending options, they provide loans online. Bad credit owners often end up having to think of these as well, as it would be more difficult for them to avail loans from traditional banks. The concept of multiple funding comes to their rescue in dire situations, where the credit score, business revenue, and existence of the company in the business play, are no longer helping their case.
The Workings of Alternative Lending Loans
Alternate lending loans refill those gaps created by traditional banks when they refuse to give loans to bad credit scorers. Two kinds of alternative lenders exist.
- Direct Lenders: These give loans after cutting out intermediaries, and generally function as finance companies. Private equity firms, investment banks, and brokers are the intermediaries that get cut out.
- Peer-To-Peer Lenders: A connection between investor and borrower that work directly in that respect, P2P lenders function via the online marketplace. These investors fund small loans spread out in a diverse portfolio.
Categories to Small Business Financing
When there are looser spending needs, few small business loans get utilized for working capital. Instead, commercial mortgage, new equipment, or invoicing make up specific expenses that get met after borrowing. Below are some types of small business catered to by alternative lenders.
- Business Lines of Credit: These resemble credit cards, as they have a similar cap that decides the limit for borrowing. Approval of lender depends on a revolving line of credit, i.e. numerous funds that get aggregated. Unlike maximum limit, the interest rates of the borrowed amount would only be charged in business lines of credit.
- Invoice Financing: These are also called factoring. Invoice financing comes into use when there are certain cash flow issues; the companies may be waiting for outstanding unclear invoice financing. With factoring, unpaid invoices can be sold to a lender. Here, until the invoice is paid, the lender keeps a part of the outstanding amount after paying the most portions of the amount owed on the invoice upfront.
- Merchant Cash Advances: Shortened to MCA, this financing option could prove a nice idea for all those companies who want speedy access to capital. For a sizeable figure of anticipated sales, the lender offers lump-sum cash.
- Equipment Loans: For the required equipment, the lender finances 80 to 100% of the cost, where the collateral is the equipment itself. It is the best alternative for lenders who prefer equipment loans primarily.