Table of contents

  • Summary
  • Introduction
  • Alternative lending: an overview
  • What types of funding do alternative lenders provide?
  • Step one: identify your needs
  • Step two: consider these factors
  • Access reliable business funding with MarketFinance
  • Frequently asked questions (FAQs)

Summary

Every business needs funding. As traditional business loans become increasingly inaccessible, alternative lending becomes the go-to option for business owners. To help you spot the best lenders around, this guide outlines some things to bear in mind. We also offer an overview of alternative lending and the common types of funding it includes. Finally, we round off the article by answering some frequently asked questions.

Introduction

The way businesses access funding is changing. While securing a loan used to be as easy as walking down to your local bank, traditional lenders are now turning away small businesses in their droves. But as the saying goes, when one door shuts, another opens. And for business owners looking to secure funding to launch, sustain or grow a business, online lenders are becoming increasingly attractive sources of financing.

Alternative, online business lenders provide small businesses with a wide range of cash flow solutions to meet their needs. Whether you're looking for a fast business loan or to free up some unpaid invoices, there are a huge variety of lenders out there that can help. However, as the market grows, it's becoming increasingly hard for business owners to decipher legitimate facilities from untrustworthy ones. So, to help you separate the wheat from the chaff, this guide notes some important things to bear in mind when searching for online lenders.

Read on if you’re serious about finding the best lender for your small-to-medium-sized enterprise (SME).

Alternative lending: an overview

Alternative lending refers to any lending outside of traditional financial institutions like banks, credit unions and insurance companies.

Unlike these mainstream facilities, alternative lenders are typically based online, which means they typically use the latest software to streamline the lending process. Compared to traditional loans, the funding they offer is often unsecured, which means that businesses aren't required to provide any collateral for their loan. Alternative funding can be approved much faster, with some lenders even releasing funds the same day as the application. Finally, alternative lenders usually require much less paperwork from business owners, with bank statements, a credit score and tax returns usually enough to qualify a loan.

While the benefits of alternative lending are clear, it can also come with risks. Because alternative financing is typically unsecured, lenders often need to charge higher interest rates to mitigate the risks. Moreover, as demand for these services surges, an increasing amount of unregulated lenders are popping out the woodwork. This is why business owners need to research before deciding on a business lender.

What types of funding do alternative lenders provide?

Every lender is unique, so different institutions will provide different funding options. But here are some common examples of alternative lending:

  • Business loans
  • Equipment loans
  • Business lines of credit
  • Invoice finance
  • Merchant cash advances
  • Government-backed loans

No matter the size of your enterprise, these cash flow solutions can be used effectively to take your business to the next level. Follow the guidance below to make sure you're accessing the funding from a trustworthy, reputable lender.

Step one: identify your needs

As we’ve pointed out, there’s no shortage of funding options available for small businesses. Some help businesses invest in necessary equipment, some free up cash from unpaid invoices and others simply offer them short-term cash injections. Since different lenders have different specialisations, you need to know which type of funding your business will benefit the most from before you scour the market. This way, you can cut through the noise by only focusing on lenders that cater to you.

Different lenders also have different lending terms, interest rates, approval rates and application processes. This means some alternative facilities will be more suitable for certain businesses. To make sure you find the best match for your SME, you must identify the unique needs of your business before you look for lenders.

To help you identify your needs, you should consider why you need funding, how much funding you need, how much interest you can afford, when you can pay the loan back, how soon you need the funding, if you’re looking for a short or long-term solution and what the current state of your credit profile is.

By assessing these various factors, you will have a much clearer picture of what to search for in a lender. However, the hard part isn’t over yet. With so many alternative lenders to choose from, you now need to find one that will work for you. To help you do this, we recommend asking yourself the following questions when looking for lenders.

Step two: consider these factors

Are they credible?

Alternative lenders aren’t required to meet the same regulatory requirements as traditional banks. So while many business lenders are very trustworthy, less regulated options could potentially harm your bank account and credit profile. To make sure this doesn’t happen to you, you need to ensure the lender is credible.

One of the easiest ways to assess whether an alternative lender is credible is to see if they’ve been recognised by alternative financing guides like CompareBanks or BusinessFinancing. These sites provide information to business owners to help them access reliable funding options. So, if you spot a lender on one of these finance guides, it’s likely to be a safe bet.

Another way to assess the credibility of a lender is to see if it’s won any industry awards from accredited institutions like Wealth and Finance, Lloyds Bank and Sunday Times. If a lender has won any of these accolades, there’s no doubt they’re a credible option.

Is their application process simple?

One of the main reasons business owners avoid traditional bank loans is their arduous and bureaucratic application processes. In comparison, alternative lenders require a lot less paperwork and use the latest software to make the process as streamlined and customer-centric as possible. This helps make applying for funding as easy and stress-free as possible, so business owners can focus on the things that really matter—their SME.

While this is the case for most online lenders, some alternative finance facilities issue long wait times and make business owners jump through hoops by requiring a lot of paperwork. We recommend only considering lenders with simple, frictionless application processes to avoid this. And if members of their team can guide you through the process via a chat or telephone, that's a bonus.

Are their interest rates reasonable?

No one likes paying interest. Unfortunately, borrowing doesn’t come free. Interests rates dictate how much your business will have to pay back for a loan. To make sure you choose the most affordable option possible, they are one of the most crucial things you should consider when seeking alternative finance.

Interest rates should be listed clearly on the lender's website. However, while these rates offer a general indication of how much a loan will cost, the actual rate will depend on the circumstances of your business. For instance, your business's size, credit history, and the type of loan you are securing will impact the rate. Therefore, to make sure you're getting the best deal possible, it's advised to shop around before deciding on a lender.

Also, some financial solutions, like government-backed loans, offer more reasonable interest rates or special perks like interest-only payments for the first six months. If this interests you, it may be worth searching for providers that offer these services.

Are their terms flexible?

No two businesses are the same. This means that their funding shouldn’t be either. Fortunately, one of the biggest selling points of alternative finance is its flexible terms. Compared to loans from traditional banks that are more likely to offer blanket solutions, alternative providers can be more flexible. This means they are normally more willing to adapt their funding to the unique needs of your SME. For obvious reasons, this is much more attractive to business owners.

However, while alternative financing is much more adaptable than traditional institutions, some providers offer more flexible terms than others. By looking out for things like non-restrictive contracts and adjustable loan repayments, you are more likely to find a lender that will suit your needs. Also, since some funding solutions (like invoice finance, order finance, or flexi loans) are more accommodating to individual business requirements, it's a good idea to look for providers that offer these services.

Access reliable business funding with MarketFinance

The alternative finance industry is vast, and it's growing every day. To avoid becoming overwhelmed by these endless options, business owners need to know what to look out for. By taking heed of the advice above, the search for alternative finance can be made as straightforward and stress-free as possible, giving you the time and energy to focus on the future of your business.

If it’s a trustworthy lender you’re after, MarketFinance has got you covered. Standing as one of the most respected providers in the industry, we offer a range of flexible solutions that fit the needs of modern-day businesses. Our smart, easy-to-use interface makes applying for loans simple and fuss-free, and our interest rates are much more affordable than other alternative lenders.

To learn more about our offerings and eligibility criteria, visit our site here.

Frequently asked questions (FAQs)

What is alternative finance?

Alternative finance is any type of funding that isn't issued from a traditional lender like a high street bank, credit union, or insurance company. Unlike mainstream finance, this type of funding is typically provided by online lenders. It's recognised as a good option for business owners looking for unsecured and flexible cash flow solutions.

What are some common examples of alternative finance?

Every alternative lender will offer slightly different funding solutions. However, some common examples of alternative finance include business loans, equipment loans, business lines of credit, invoice finance, merchant cash advances and government-backed loans.

How can you identify a good lender?

When searching for a good lender, you should ask yourself the following questions: Is the provider credible, and do they have good industry standing? Is their application simple and fuss-free? Are their interest rates reasonable, and will they burden you with unnecessary charges? Finally, do they offer flexible solutions that can be tailored to the needs of your business?

How can I identify my business’s needs?

To help you identify your financing needs, you should consider why you need funding, how much funding you need, how much interest you're able to afford, when you'll be able to pay the loan back, how soon you need the funding, if you're looking for a short or long-term solution and what the current state of your credit profile is.

How can I tell if a lender is credible?

When seeking alternative finance, it's important to only borrow funds from credible lenders. To check if a lender is legitimate, you could see if renowned alternative finance guides have recognised them, check if their company has won any awards, look at their online trail and read customer reviews.