When small businesses apply for traditional bank loans, they get turned down at record rates. Analysts claim that anywhere from 20 to 80 percent of small business applicants get rejected when looking for funding. To close the gap and access the funds they need, many small businesses are turning to alterative lenders.
Thinking about applying for a loan from an alternative lender? Wondering how to find the best lender? How to apply for a small business loan? And, how to improve your chances of being successful? Here’s what you need to do.
1. Find a Reputable Lender or Capital Provider
Fintech lenders are largely regulated by different rules than their banking counterparts. As a result, it’s up to you to do the research to figure out whether a lender or capital provider is credible or not. Check out their rating with the Better Business Bureau, look closely at their fee structure, and read online reviews from other borrowers.
It’s also important to go beyond that. Poke around the lender’s website. What type of information do they offer? Do they seem committed to educating their clients about the alternative lending process and business finances in general? Do they provide tips on how to apply for a small business loan? Ideally, you want to work with a lender who’s a true expert in their field.
Note that the key difference between a lender and a capital provider tends to be how the loan is repaid. Lenders tend to put you on an installment schedule, where you pay the same repayment every month. Capital advance providers, in contrast, often peg repayments to your future revenue. For instance, you may pay a certain percentage of revenue. That can make it easier to stay on top of repayments.
2. Get Your Documents in Order
When you apply for a small business loan or capital advance, you need to provide the funding company with a snapshot of your financials. Gather your bank records and financial statements for the last quarter to six months. In most cases, lenders may also want to look at your personal financial records—that’s especially true if you’re a sole proprietor or part of a small partnership.
Alternative lenders often use different creditworthiness indicators than traditional banks. They want to see how your business has been doing, but they also want information to help them make projections about your future potential to repay the loan.
These lenders often look at everything from details in your accounting software to social media engagement to sales trends from your online stores. So you can easily share this information, make sure you have your account sign-in details when applying for a small business alternative loan.
3. Consider the Software or Apps Underlying the Lender’s Process
Alternative lenders and fintech companies use a range of technical tools to review your information. If possible, try to figure out which tools the company uses when reviewing the loan. Tools such as Decision Logic and Yodlee are ideal.
While the exact process behind the scenes is complicated, using them as a customer couldn’t be easier. These tools basically allow the lender to access your business banking information safely and quickly. For instance, you may be asked to enter your login credentials just once – instead of downloading and transmitting statements yourself.
4. Be Clear About Your Needs
This can be a critical element of applying for both traditional and alternative funding. When putting together your application, take some time to note why you want the funds.
If possible, make some projections about how much you plan to spend and how you think that capital injection will affect your business. Then, create a timeline for how you plan to use the funds as well as how you plan to pay them back.
Now that you know how to apply for a small business loan, it’s time to start the process. Spend some time researching lenders and gathering your information. Then, jump right in. It may be easier than you think.