Alternative Money Lenders Vs Traditional Banks – What’s the Best Option?

If your company needs a business loan, you’ve a number of options. You can get in touch with your local bank and see what they have to offer, or you can contact a finance specialist. When it comes to dealing with traditional lenders, it can be hard to meet strict criteria for loans. That’s why many business owners opt for alternative lenders.

Greater Odds of Approval

Whether you are looking for commercial loans or unsecured business loans in Melbourne, your chances of getting approved are much easier with an alternative lender. It is a lot simpler to get funding from alternative lenders in comparison to conventional lenders. The approval rates for small business loans is far greater with alternative lenders than banks. Traditional banks approve about 25% of requests, while alternative lenders are way higher at close to 60%.

Credit Score

One of the reasons banks don’t approve as many loan applications is down to your credit score. Banks look for a higher credit score in comparison to money lenders. An alternative lender generally carries a much lower credit score, meaning it is easier to meet their criteria and have your loan approved. The majority of alternative money lenders are willing to look past a low credit score if you can prove your business is healthy or you’re prepared to put it up as collateral.

Amount of Time in Operation

The longer your business has been operating, the easier it is to secure a loan with a bank. If you can prove your business is financially secure and you’ve been functioning with no issues for a minimum of 2 years, traditional banks are much more likely to approve your loan. In contrast, if your only a few months old, you’ll need to look elsewhere for funding. Alternative lenders often approve loans for companies who have been running for under a year, they tend to have departments that specialise in small business funding.

Loan Options

Traditional banks only approve loans when you’ve got the collateral to back up your request. If you don’t have collateral in the form of land, property or vehicles, you’ll struggle to secure a loan with a conventional lender. Banks are out to make money on every loan, they’ll only approve a loan if you can guarantee you’ve collateral as security. Alternative lenders offer bad credit loans and unsecured loans.

Specialisation

Alternative money lenders tend to specialise in small business loans, bad credit loans, caveat loans and short-term financing. They also deal with other types of loans, so you’ve numerous options available to you. Traditional banks mainly only deal with large, secured business loans.

Both types of lenders have their pros and cons, it all depends on what is right for you. The type of loan you apply for will ultimately depend on your situation. If you’re a small business and you need cash fast, dealing with an alternative lender is your best option. If you’re not in a rush and you’ve great credit ratings, a traditional bank may be best for you.