Alternative lending can be beneficial when done right

2/6/2012

Alternative lending options such as cash-advance loans have their pitfalls - high interests rates being one of them - however, many small business owners are still finding they're unable to meet banks' criteria for small  business loans, Crain's New York Business reports.

For instance, a July 2011 National Small Business Association Survey found that, nationwide, only 36 percent of businesses were able to receive adequate funding compared to 78 percent in 2008.

Furthermore, Crain's cites a Biz2Credit report that found approval rates for alternative lenders in its network (excluding credit unions) was 62.2 percent in December - a marked increase compared to large banks (9.7 percent) and small banks (47.1 percent).

"Alternative lending is really gaining ground, and [the lenders] are evolving to meet the better credit risk that's now coming their way," Marilyn Landis, president of outsourced CEO firm Basic Business Concepts, told the news source.

However, problems may arise if a company attempts to use such loans for annual payroll. Rohit Arora, CEO of online loan broker Biz2Credit tells the media outlet that they're better suited for short-term options, such as financing purchases during a period of high demand.

Also, successfully paying off an alternative loan can build a credit history - beneficial if applying for an SBA loan in the future.