SBA Loans vs. Alternative Loans
If you’re a business owner ready to expand, a plethora of funding options are available. If you tried to qualify for a loan through your bank and got turned down, you might consider an SBA loan or an “alternative loan”. Here’s information you need to know so you can make an informed decision to acquire low-cost funds.
Alternative lending is a broad term used to describe the wide range of loan options available outside of a traditional bank loan.
The process for an alternative loan can be very different from the application for an SBA loan. In general, it can be faster. Usually, less documentation is required and the process can take minutes instead of days with fast funding.
Alternative lenders will also consider borrowers who don’t qualify for an SBA loan due to time in business, poor credit, no collateral or other reasons.
However, there’s a downside – and it’s important. Many alternative loans have high interest rates and short loan terms that can hinder a small business rather than help it. In general, business owners should strive to get low-cost funds with long terms that won’t crunch cash flow.
Here are a few types of alternative small business loans:
Merchant Cash Advances
According to the financial experts at NerdWallet, Merchant Cash Advances for small businesses are unnecessary and expensive compared to a true business loan. For additional information, read Merchant Cash Advance: Find a Better Alternative.
Credit cards have a much higher interest rate than SBA loans but are easy to obtain. It’s not a good idea to use credit cards to finance large purchases because they’ll eat up available credit. Credit cards can be useful when making a short-term financial outlay that will be recovered quickly.
Line of Credit
A line of credit gives you access to a set amount of money you can tap into when needed. This type of funding can be used for businesses that need short-term financing to make up for gaps in cash flow.
Also known as accounts receivable financing, this is an option for small businesses that deals with unpaid invoices. Instead of waiting for payment, you get an advance, which you pay back with a fee when customers settle their accounts.
Small Business Administration Loans
An SBA loan is a government-guaranteed small business loan that has a long-term and low-interest rates. The Small Business Administration (SBA) is the government agency that partially guarantees SBA loans and was founded in 1953 to support small business owners across the United States.
Credit site NAV reports that SBA loans have some of the most attractive terms among small business loans. SmartBiz SBA loans have a 10-year term meaning payment are very small.
SBA loans come with different rates depending on the lender you work with; however, the SBA establishes the maximum amount that can be charged for these loans. SmartBiz SBA loan interest rates are variable and depend on the loan amount. There are several fees associated with SBA loans. However, even after fees, SBA loans are vastly cheaper than the majority of alternative financing and alternative lender options.
SBA loans have gotten a bad wrap as being too time intensive. SmartBiz has solved this problem. Our online platform streamlines the application process making it fast and easy to upload documents. SmartBiz matches borrowers with the bank most likely to fund. You’ll get to a “yes” faster with SmartBiz.
For more in-depth information about acquiring an SBA loan from SmartBiz, visit our website.
Before you consider alternative loans, your first stop should be the SmartBiz website. By entering a small amount of information about your business, you’ll know in about 5 minutes if you’re qualified for a low-cost SBA loan. (With no impact on your credit score) As an added bonus for our readers, receive $500 off of closing costs when you use the promo code ‘blog’. Evan Singer, president and CEO of SmartBiz Loans has advice for every small business owner, “If (you) can get an SBA loan, take it,” he says. That’s because these loans offer the “best interest rate, lowest monthly payment, and longest term.”