The New Safe Space for Small Business Financing

Small businesses are flocking to alternative financing solutions. They provide what traditional banks can’t.

The reality is, even those small business owners who scrimped and saved for years before opening their company will need working capital once their business gets underway. Because running a business and growing one are two very different things. Even those businesses who are bringing in enough cash flow to pay their operational expenses will find themselves in need of financing to keep them going during a slow period or to enhance things like technology, training and marketing.

But what’s been happening over the last decade or so is that small business owners are finding that their business bank is unwilling to loan them the capital they need. And that’s when many small businesses began looking for alternative solutions. Here’s a look at why:

Creditworthiness

For a traditional bank, there’s little they care more about than whether or not a client they loan money to will be able to pay them back. So it’s only natural that they use a small business’ credit history to determine if they are a viable candidate for a loan. For the small business owner that has had financial struggles in the past or has very little credit history, the stringent criteria of traditional financial institutions make it difficult, if not impossible, to get approved for a loan.

Alternative lenders, like ones that offer asset-based loans, are only concerned with the value of your business’ assets and therefore, your credit history is not an important part of the loan equation.

Operational history

Another important element to traditional lenders is the length of time a company has been in business. Those with a short operational history are usually out of luck when they turn to banks for this reason, which means start-ups, or young companies are forced to look elsewhere for financing.

On the contrary, non-traditional financial institutions are less concerned with how long you’ve been in business and more interested in things like your accounts receivables, inventory and your owner-occupied commercial real estate. These assets can be used as collateral and help you get the working capital you need for whatever business issues you face.

For today’s small businesses, alternative lenders are filling the gap that traditional lenders have created as a result of tighter regulations and stringent lending criteria. Companies that need an infusion of cash to cover costs during slow periods, rapid expansion, or working capital needed for payroll or operational expenses, can use their assets as collateral and avoid the lengthy application process and the imminent rejection from their banks.

If you’re in need of working capital, get in contact with us. We have an array of asset-based loans including inventory, equipment, accounts receivables and owner occupied commercial real estate financing.