If you have been running a small enterprise on your own, you would have already experienced the challenges of upgrading working capital or enhancing business growth with loans from banks. Not only do banks now have to conform to stringent regulations post-recession, but they also have to spend quite a bit for underwriting a loan, even if the amount is less. This explains why alternative finance companies have emerged as the go-to funding options for smaller businesses. But, despite the surge in popularity of alternative funding, there are still many myths surrounding them. Entrepreneurs have opted for these because of concerns of risks of borrowing from other lenders, credit scores, and lack of time.
Debunking myths about alternative financing options:
- AF entails high costs: One of the assumptions that people have is that alternative financing will be far more expensive. This keeps them away from alternative funding sources. The truth is rates are aggressive, especially when time is short and fees are hardly competitive; however, if you can blend this with the traditional financing options, you can generate sufficient cash flow for your business. For example, any business that finds it a struggle to get competitive loan rates from traditional lenders despite having an impressive turnover.
- AF loans are time-consuming: It has been argued that getting alternative financing is always more time-consuming and the experience of securing it is far from pleasant. However, this notion is not completely true as the AF market has undergone a lot of changes over the years, as far as paperwork is concerned. At the same time, if you are in a desperate need for finances to cater to growing consumer demands, you will not mind an elaborate paperwork or a tedious application process. Moreover, besides traditional underwriting, AF companies make use of technology and proprietary analytics to guarantee faster access to funds. Entrepreneurs can even enjoy short-term financing plans, where they will not be forced to put up their assets as collateral.
- AF is only for bank-rejected businesses: Only businesses that have not been successful in qualifying for bank loans were believed to be candidates for alternative lending. This is not true as many modern-day entrepreneurs are considering it because of the advantages it offers over traditional loans. It was also thought that AF is for desperate businesses which are on the verge of collapse.
- AF will cater to failing companies: The idea that AF companies will work with just about anyone, disregarding their financial status, is not true. They take a decision after a thorough evaluation process to ensure that the applicant has a strong financial position. AF targets businesses that are keen to work with companies where they can get viable growth opportunities.
- Negatively impact credit scores: It is important to debunk this myth regarding alternative business funding companies, because in reality, AF can help improve an enterprise’s credit history. Business owners in desperate need for funds will be forced to take out money from their own savings/assets which can land them in debt. Alternative finances help you to stay away from business debts that can impact your own credit history.
- AF industry does not conform to regulations: Dispelling this myth is imperative because today AF services are governed by both federal and state lending laws and subject to commercial and contractual law obligations.
While you may feel confident about opting for alternative financing once these myths have been dispelled, it is recommended that you consult an expert because there is no one-size-fits-all solution that works for all businesses.
