As a business owner in need of a loan, it can be comforting to know you have options. Going through a traditional bank is one way to secure financing, but if you’re looking for quick approval rates, an alternative lender may be a better option. So, how do you decide which is more appropriate for your business?
Here, we will explain the difference between alternative lending versus bank lending, including the pros and cons of each.
Traditional Banks vs. Alternative Lenders — Traditional Banks for Business Loans
A bank is likely the first place you think of when considering a business loan. While traditional banks are known for offering low interest rates, it can sometimes be challenging to qualify. Many conventional bank loans require more time in business and higher credit scores compared to alternative lenders. But, if you are able to qualify, it can be an affordable way to secure funds to expand your business or maintain cash flow.
Securing a loan from a traditional bank has its benefits, including:
- Potential boost to business credit
- Low interest rates
- Professional banker relationship
- Predictable monthly payments
Disadvantages to choosing a bank rather than an alternative lender are:
- Requirements involving specific collateral
- Lengthy paperwork
- Strong credit requirements
- Longer wait time
When to Consider a Traditional Bank for Funding
Traditional bank loans may be in your best interest if you’re looking to use the funds in the following ways:
- Debt consolidation
- Buying equipment
- Maintaining steady cash flow
- Purchasing inventory
- Acquiring other businesses
- Investing in commercial real estate
Traditional Banks vs. Alternative Lenders — Alternative Lenders for Business Financing
An alternative lender is a financial organization that provides funding options outside of traditional bank lending in the form of a term loan, SBA loan, working capital advance or other solution. Many alternative financing companies use a peer-to-peer model and operate online.
The main difference between bank loans versus nontraditional lending is that where traditional banks often have long applications and strict loan requirements, alternative lenders provide loans quickly and with greater ease.
Other benefits of alternative lenders include:
- Fast response times
- Wider variety of funding options
The cons of alternative lending can be:
- Smaller loan amounts
- Shorter terms
- More expensive
- More frequent payments
When to Consider Alternative Lenders for Funding
Opting for bank business financing through an alternative lender is an excellent option for small businesses who meet one or more of the following criteria:
- Small loan value
- Need cash quickly
- Inability to qualify for traditional bank loans
Get the Funding You Need Within Days at Sapphire Capital Group
As your one-stop shop for financing and business services, Sapphire Capital Group Inc. offers many quick approval rates, no paperwork required, and flexible options for small businesses. We work with many different private lenders for flexible terms that will meet client needs and provide companies with business lines of credit, equipment financing and cash advances to help them pursue their financial goals.