The so-called alternative loan industry has exploded to take advantage of a gap in small-business funding. Please note that these options tend to be more automated, more convenient and more expensive.
– Cash advance/short-term online loan: a loan or advance against a company’s revenue or credit card transactions. The money is repaid through incremental payments extracted automatically from a company’s account.
Benefits: Fast turnaround and poor credit scores not a problem
Drawbacks: Higher costs and shorter terms
Examples: CAN Capital, Merchant Cash & Capital and OnDeck
Typical cost: Fees can range from 30% to 200% APR
– Line of credit: unlike a term loan, a line of credit can be drawn against when the need arises.
Benefits: Interest is paid only on the amount taken and cash is available quickly
Drawbacks: The line can be revoked or changed at the lenders discretion
Examples: OnDeck, Kabbage and Headway Capital
Typical cost: 7% to 80% APR
– Term loan: similar to bank loans.
Benefits: Longer terms and larger amounts are available
Drawbacks: More expensive than bank loans
Examples: Funding Circle, Lending Club and Fundation
Typical cost: Fees can range from 6% to 30% APR plus fees
– Crowdfunding: a way to raise money from lots of small contributors.
Benefits: When it works, it is straightforward
Drawbacks: Can be as challenging as traditional channels
Examples: Kickstarter and Indiegogo
Typical cost: 4% to 5% plus processing fees
– Marketplaces: small-business lending marketplaces gather multiple options in one place.
Benefits: Easy comparisons and ability to pitch multiple lenders at once
Drawbacks: Process can take longer as marketplaces do not lend their own capital
Examples: Lendio and Fundera
Typical cost: Lenders pay finders fee