“Banking is a funny business,” says the Motley Fool. “When the economy is doing well, it can be pretty easy to get a loan. Conversely, when the economy hits a speed bump, banks don’t hesitate to close off the spigot and stop lending, even to the strongest borrowers.”
So, given that the economy is in full-swing recovery, it should be easy for your business to get a loan, right?
There are any number of reasons why your business loan might not get approved, regardless of the state of the economy. According to Loans.org, the five chief reasons are:
- Bad credit history (even a single missed payment constitutes one)
- Insufficient collateral
- Inadequate cash flow
- High-risk and/or uncertain business environment
Fortunately, if the bank turns you down, there are alternative lenders that employ distinctively different and unorthodox methods to evaluate your credit worthiness and approve a loan application online in minutes.
There is considerable debate about whether such an approach actually can sift good risks from bad (what about the top-of-class med student graduated from a prestigious university with a small fortune in outstanding student loans—good risk or not?).
But if you’re a young entrepreneur with a good college background, Upstart might get you a personal loan at a favorable rate to fund your business. It only takes a couple of minutes online to get a decision. You don’t have to be a college graduate to figure out the advantage of that—even if you need to be one to apply.
Need cash quickly to address an emergency or take advantage of an opportunity? It doesn't make sense to go with a traditional lender because the review and processing can take too long. Moreover, often there are differing underwriting standards for existing businesses versus new businesses.
Alternative Lender LoanMe can get the necessary cash to you quickly. How quickly? In some cases within two hours or the very same day. Available business loans vary by state but range from a $2,500 shot-in-the-arm up to $100,000.
Business owners can use the funds to purchase necessary equipment, consolidate debt, improve credit standing, or build on their successes. The fixed installment payment makes planning for repayment more predictable than loans with fluctuating interest rates. Should you jump into a loan that quickly? Some business owners urge caution to ensure emotion doesn't overcome good sense.
For many, however, the ability to access a cash loan fast is the best benefit of all. As American comedian and actor Milton Berle advised: If opportunity doesn't knock, build a door.
Alternative small business lender Kabbage (get it, cabbage, slang for cash?) claims to have provided over $1 billion in funding in the form of a six-month line of a credit where you only pay a fee for what you withdraw (anywhere from one to 12 percent). Loans are approved online almost immediately. According to USA Today, Kabbage bases approval on online shopping history, banking transactions and even social media comments.
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To qualify for a loan, you must allow Kabbage to monitor your financial data—any big drop in income may prompt an inquiry about extending payments, while an increase results in offers for more credit.
The idea is to work with those whose cash flow is challenging so that when it does pick up, you have loyal customers willing to take out additional loans. Karrot reports a default rate of five percent. Loans are available in 36- and 60-month terms, with APR determined at the time of application.
Perhaps the most unorthodox loan approval parameters are offered by Vouch. The company was started by former executives from PayPal and Prosper, one of the first P2P (person-to-person) lenders. It was in beta for the past year and just launched publicly last April.
To get a loan, all you need is at least one sponsor, someone who can “vouch” for you. People willing to vouch for you need to have confidence in you, because if you renege on the loan, they agree to pay back at least some of it. The more people willing to vouch for you—and who have established credit histories—the higher the loan and the lower the interest rate.
Related Article: Getting by Without a Business Loan
Why should you consider these alternative loan sources? Well, if your bank isn’t a willing lender, it may be an easy choice to make. Everything is done online, the application process is simple and you’ll know if you’ve qualified in minutes. Unlike dealing with a bank, which can take weeks or months. Hey, maybe instead of being an alternative choice, it could be your first choice.