Exploring Alternative Lending for Small Businesses: Pros and Cons

October 19, 2023

By Henry Abenaim, CEO of Fundingo

As the CEO of Fundingo, a leading provider of alternative lending solutions for small businesses, I am often asked about the pros and cons of this innovative financing option. Today, I want to share my personal insights on the subject and shed light on why alternative lending can be a game-changer for entrepreneurs like you.

The Rise of Alternative Lending

Traditional banks have long been the go-to source for small business loans. However, in recent years, alternative lending has gained significant traction. This shift can be attributed to several factors, including stricter regulations imposed on banks after the 2008 financial crisis and the emergence of technology-driven platforms that streamline loan applications and approvals.

The Pros

1. Accessibility and Speed

One of the major advantages of alternative lending is its accessibility. Unlike traditional banks that often have strict criteria and lengthy approval processes, alternative lenders focus more on your business’s potential rather than just your credit score. This means that even if you have less-than-perfect credit or limited collateral, you still have a chance to secure funding.

Moreover, alternative lenders leverage technology to expedite the loan application process. With online platforms like Fundingo, you can complete an application within minutes and receive funding in as little as 24 hours. This speed is crucial when you need immediate capital to seize opportunities or overcome unexpected challenges.

2. Flexibility

Alternative lenders understand that each business is unique and requires tailored financing solutions. Unlike traditional loans with rigid terms and conditions, alternative lending offers greater flexibility. You can choose from various loan types such as term loans, lines of credit, invoice financing, or merchant cash advances based on your specific needs.

Additionally, alternative lenders are more willing to work with businesses in niche industries or those with unconventional revenue streams. This flexibility allows you to access funds that might otherwise be out of reach through traditional channels.

3. Innovation and Technology

Alternative lenders are at the forefront of innovation, utilizing advanced technology to enhance the lending experience. From online applications to automated underwriting processes, these platforms streamline the entire borrowing journey, making it more efficient and convenient for small businesses.

Furthermore, alternative lending often leverages non-traditional data sources to assess creditworthiness. This means that factors like your online sales history or customer reviews can be taken into account, providing a more holistic view of your business’s financial health.

The Cons

While alternative lending offers numerous advantages, it is important to consider its potential drawbacks as well.

1. Higher Interest Rates

Due to the higher risk associated with lending to small businesses without stringent criteria, alternative lenders often charge higher interest rates compared to traditional banks. It is crucial to carefully evaluate the terms and calculate the overall cost of borrowing before committing to any loan agreement.

2. Lack of Regulation

Unlike traditional banking institutions that are heavily regulated, alternative lenders operate in a less regulated environment. While this allows for greater flexibility and faster approvals, it also means that borrowers need to exercise caution when choosing a lender. Researching reputable platforms and reading customer reviews can help mitigate potential risks.

3. Limited Loan Amounts

Alternative lenders typically offer smaller loan amounts compared to traditional banks. While this may not be an issue for micro or small businesses with modest funding needs, larger enterprises requiring substantial capital may find alternative lending options limiting.

In conclusion, alternative lending has revolutionized the way small businesses access financing by providing accessibility, speed, flexibility, and innovative solutions tailored to their unique needs. However, it is essential for entrepreneurs to weigh both the pros and cons before making a decision.

If you’re interested in experiencing how Fundingo can empower your business with alternative lending solutions firsthand, I encourage you to request a demo today. Our team of experts is ready to guide you through the process and help you make informed financial decisions.

Remember, exploring alternative lending options can be a game-changer for your business. Embrace the opportunities it presents and take your entrepreneurial journey to new heights.

Henry Abenaim

CEO, Fundingo