Small businesses come in all shapes and sizes across many industries, which means a one-size-fits-all approach to loans just doesn’t work. Reuven Barukh, CEO of Live Group explains why alternative lenders can be a good option
It can take a lot of hard work to apply for a loan with a bank, and if you’re successful, you could be waiting for some time before the funds hit your account.
SMall businesses often move too fast for this to always work; not only is your time precious but when you’re in need of some extra cash, time is usually of the essence. But, no successful business owner jumps into a decision without doing their homework first and planning the next steps forward.
Here are 4 key things to consider to help you decide whether an alternate lender is right for your next small business loan:
Know what your business needs a loan for (and what you’ll get out of it)
The key question is, how could your business take advantage of a loan? Alternate lenders offer unsecured loans which essentially means your loan can be used for any business purpose and doesn’t have to be borrowed against an asset, such as your home.
This means there could be many options for how your funds could be used – particularly when aiming to help generate a return. So, if you’re thinking about buying that must-have new gear, try to understand where it fits into your business model and how it will add value to your business.
For example, if your café is looking for a new coffee machine, ask yourself whether it’s likely to speed up service, increase sales or just make better coffee. Alternatively, if you’re a tradesperson looking to buy a bigger vehicle, does it mean you’ll be better prepared for transporting the materials and tools you need for more lucrative projects?
How quickly do you need the loan?
There could be many reasons why you don’t have the flexibility to wait for a loan, such as needing new equipment to undertake an upcoming project or preparing for a peak retail season. Alternative lenders can help you get the funds you need quickly, often within a few hours. Compared to the major banks, alternative lenders generally have simpler application processes.
Consider using a small business ‘lending marketplace’
These lending providers connect small businesses seeking loans with multiple alternative lenders. Lending marketplaces submit your business details to the most appropriate lenders on your behalf, helping speed up the process one step further. Some marketplaces use sophisticated algorithms to match small businesses with the most suitable lender in real-time.
Matching is based on a few key data points such as turnover, time in business and requested loan amount. In return for your small effort in enquiring through one lending marketplace, you can look forward to receiving a decision within a few hours from whoever is the most appropriate lender, while most customers receive their funds within 24 hours after approval.
Have a clear idea about how you’ll meet the repayments
Loan terms with alternate lenders are typically between 3 and 24 months and you can choose to make repayments daily or weekly to suit your business’ needs. Of course, it’s crucial to review past financials as well as any cash flow forecasts to help you decide how much you’ll be able to pay and when.
Loans are typically provided upfront and paid back at agreed regular intervals in line with the cash flow of your business. Each repayment has a portion of interest added to the agreed payback amount.
Work out how much you need to borrow for the best outcome
While you’ll pay less interest if you don’t borrow more than you need, it’s also important to make sure your loan doesn’t fall short of what’s required to make a difference to your business. Of course, when it comes to buying new assets, it only takes a bit of research to find out how much you need. But, for other ideas such as investing in more staff and inventory to cover a spike in trade – that’ll take a little more number crunching.