Small Business Loans – Traditional Vs. Alternative Lenders

Small Business Loans – Traditional Vs. Alternative Lenders

You can rely on this business loan from a traditional lending source it also provides access to a full range of funding solutions, as well as a dedicated lending specialist who can answer all your questions about financing alternatives.

But they are more discerning about whom they lend to and take longer to fund your business, in addition to demanding collateral (real estate and/or inventory) to ensure payment for your operation, and sometimes demanding a personal guarantee.


When applying for a business loan, be sure to compare your options: check first to see if your primary bank provides small business loans, and then the terms on which they would do so, before seeking out other traditional and online lenders to compare loan amounts, interest rates and repayment terms.

Traditional lenders need to see strong credit profiles, collateral and significant detail in the business plan before they will lend. Nobody is going to loan you money without more than a vague idea, and those that do will require some measure of down payment or equity – cutting into your share ownership over time.

As the name suggests, alternative lenders offer easier and quicker application and turnaround times than banks, and lend to businesses with lower credit ratings or those in business for just a few years. In addition, some offer flexible repayment terms that are based on sales of your company’s credit card or receivables.


Big banks tend to employ strict lending criteria, such as collateral and a comprehensive business plan, whereas alternative lenders tend to look more at cash flow than credit history, making applying easier.

Payday lenders, on the other hand, have shorter times for applying and quick repayment terms but higher interest.

For the borrower: most financial service providers are online lenders. However, such financial service providers enable SMEs to easily access financing through various financing marketplaces; some even partner with traditional lenders to provide a full suite of products and services for them to consider.

Historically, banks provided small business loans, although they required collateral and had more rigorous lending criteria subject to months of approval. P2P lenders have vastly simplified the application process, by funding applicants with lower credit scores, as well as less stringent benchmarks, such as having consistent revenue and paying taxes.


The researchers recommend us to study them in order to choose the financing solutions that best fit our individual business’s financing needs. However, fees related to every type of financing are not to be forgotten: they might accumulate on expenses.

Alternative lenders, including those that are now CEI partners, have no borrower-facing embassies serving the US small business owner community. Neither do alternative lenders have dedicated staff (think loan officers) providing in-person service. Nor, for that matter, do they make loans over the phone nor offer instant, online credit decisions. And they definitely don’t underwrite loans in a matter of days – if not hours. Official acknowledgement that ‘community’ described an intangible asset of community development entities occurred around the same time as the financial crisis started to unfold in 2008, more than a decade following the initial legislative act in 1994. Small business borrowers who need to know if they qualify for a loan and get funded right away – for example, to cover day-to-day operations expenses or to grab onto an exciting growth opportunity – don’t have months to wait until a loan officer calls them in their office to sit together and personally fill out forms and sign papers. Borrowers want answers – immediately. They don’t have the patience to wait around when the funds they seek could help give the business a boost and attract new customers.

The lender uses technology-first underwriting and other methods to speed up the loan application process and expand credit availability. While alternative financing – including merchant cash advances and invoice factoring – often come with higher interest rates than traditional lenders, repayment terms tend to be much quicker. In addition, with a merchant cash advance or invoice factoring, you’re often required to make daily or weekly payments, tied to your incoming revenue – making the option especially attractive to sole proprietors with minimal time or less-than-stellar FICO scores.


Conventional loan approvals are based on the financial record of your business, which banks and lenders will carefully review using criteria such as credit score, revenue and number of years in business. What most lenders want to see is evidence that the revenue stream is stable, and that tax obligations and expenses are being met.

Applying for finance using traditional banks also means having to satisfy all their strict requirements. For example, many banks insist on seeing extensive paperwork from a company before they can approve a loan. This process can often take months to put together and may be too time-consuming for small businesses or new ventures, particularly if they are short on resources to compile comprehensive applications forms.

The advantage to alternative lenders is that they get you the money quickly, although there will be higher interest rates and fees, as well as perhaps a shorter repayment time than will be found with a bank loan. But no matter what your decision about lenders will be, you must do your homework before signing anything.

Preston Tate

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