If you’ve ever tried to get business loans from traditional banks or credit unions, you know how tasking it can be. Many banks and conventional loan institutions are not usually eager to offer loans to small businesses. However, if you don’t qualify for traditional loans, you may be best suited for alternative lending.
What is alternative lending, and how do I know it’s right for me? This article outlines the various situations where alternative lending will work. Find more insights below.
Best Time To Consider Lending Alternatives
Before applying for loans, you need to know what alternative lending options do and where they work best. Alternative lending allows you to pursue investment opportunities even when you don’t qualify for regular bank loans. You mustn’t lose hope if you fall under any of the following categories and have been rejected for a bank loan.
Poor Credit Score
When applying for a loan, your credit score is the first thing lenders will consider before agreeing to give you an offer. Several factors, such as untimely payments or many outstanding debts, can affect your credit ratings. The problem is that when you have bad credit, it may take time to recover, making you undesirable for traditional loans.
However, with alternative lending, you’ll find that many private lenders do not place as much value on credit scores. This means bad credit doesn’t immediately disqualify you from getting a loan. If you own real estate, you only need to convince the lender that you have substantial equity in your property to secure your loan.
Meanwhile, suppose you can make significant returns and repay the loan. In that case, you can redeem your credit history and make good credit. It is also great for small businesses that need loans but haven’t built up the required credit ratings. Therefore, if you’re looking for a loan facility focusing more on your equity than credit history, you should consider alternative lending.
Funding Cannabis Business
Cannabis real estate is one of the most profitable ventures for investors. Still, due to the nature of the business, you may find it hard to get a loan. Although cannabis has been legalized in most states, it still hasn’t earned Federal acceptance. It means that even though cannabis is legal in your state or locality, you may not be able to get a bank loan.
Suppose you want to purchase a property to carry out a cannabis business or rent to a cannabis farmer, then you may require alternative lending. If you want to keep your cannabis business afloat, you can try getting funding from lending alternatives. These alternative lending agents don’t have the same restrictions as traditional loans, so you can get the funds you need.
Quick Cash
Banks and traditional money lenders face red tape when carrying out their operations. The window between applying and getting the loan delivered may take months. Or you may be waiting for a long time before you realize you may never get a loan.
In addition, there’s a lot of competition for bank loans, and unless your small business stands out on the market, it may take a while. However, you can get quick cash loans in less than a week with lending alternatives. It is a private arrangement between you and the lender, so there are minimal external restrictions that will delay the entire process.
Therefore, it is up to you to decide whether you’re willing to wait months to see if you get a loan. Or you can bypass the entire waiting period and close deals quickly with alternative learning. This is also suitable when you have urgent upfront payments and need quick funding within a short period.
Vacant Property
Generally, when you own a rental property, your property’s value is determined by how many tenants you have. The more empty rooms there are, the more the property loses value. You may not qualify for a loan if you have a vacant residential or commercial property.
Vacancy of a property is mostly temporary, especially if you make renovations and remodels that will attract tenants. For instance, you may need funding to make these home repairs on your home or develop your rental property. Unlike traditional banks, private lenders are willing to look at the future potential property value.
Consider alternative lending to set up your commercial or residential property business and realize your investment dream. If you already have a vacant rental property, you can consider renovations that will add value to your business. Therefore, alternative lending can be your key to reviving or starting a rental property business.
Fix-and-Flip Investments
Many real estate investors are in the business of flipping houses. This means buying a property at low upfront costs and making renovations and improvements. Then, you put the property back on the market and sell it for a profit. The fix-and-flip strategy is widespread among property investors and may be highly profitable.
Unfortunately, you might be disappointed if you’re considering traditional loans to fund your investment project. Since you want low-value properties to flip, they may not meet the criteria for bank loans. This is because house flipping is a risky investment strategy, and you may be unable to encourage banks on your loan-to-value ratio.
Meanwhile, all private lenders must know you’re good for the money. You can use the equity on your existing property to obtain a cash loan, which you can use to purchase and manage the property. This allows you to jump on any fix-and-flip opportunities immediately, unlike traditional loans that will delay your project.
Examples Of Alternative Lending
You must invest in your business to maximize the potential value and gain a competitive edge. However, this may be hard when you don’t have substantial funds to finance your business. Alternative lending allows small businesses’ fundraising platforms to grow and expand their operations.
Here are some of the most common examples of lending alternatives
Online Lenders
They are like the conventional business loans you may get from banks with more flexible terms. You may also get higher interest rates within a shorter repayment window. However, this option is great when you need quick cash loans to cover a short-term investment.
In addition, they offer many types of business loans and credit options to fund your cash advance. The downside is that this isn’t a standard for long-term investments, and you have to be sure you’ll recover the money in time to repay the loan.
Peer-to-Peer Lending
Another type of alternative investment is peer-to-peer lending. In this situation, you connect with anonymous lenders who choose to fund all or a substantial part of your loan. Many peer-to-peer loan options exist for medium and small businesses in various industries.
For instance, if you’re into car rentals, you may get alternative auto lending to purchase a new vehicle to add to your rental collection. It still requires you to pay interest at lower rates than traditional loans. The only downside may be that you don’t get to choose your investors and find out about their deals beforehand.
Direct Private Lending
Under this alternative lending option, you know who your investors are and what you need to qualify for a loan. Hard money lenders may fall under this category and typically finance real estate investments. You can get private funds secured by your property’s equity and get cash to finance your project.
They have lower restrictions than traditional loans and can be perfect for quick loan periods. Apart from hard money lending, there are various types of private lenders depending on your business type. You can fully finance any expansion projects with the money you get from these angel investors.
To connect with hard money lenders, you can check for recommendations on community reviews & sites like Yelp or Google. It is vital to carefully research whether a lender offers loan deals that suit your needs. In addition, you can go through their website and find out the qualifications you may need to get a loan.
Get Alternative Lending Loans At Capital Max
As a business owner looking to finance your dream projects, you can see that the options are endless. By working with us at Capital Max, you don’t have to go through the process alone. We have designed various investment solutions suitable for small business owners at flexible rates. Reach out to our team on any platform and see what you need to qualify for a business loan.