Alternative Business Financing vs. Traditional Bank Loans: [Essay Example], 349 words GradesFixer

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Alternative Business Financing Vs. Traditional Bank Loans

  • Category: Business
  • Subcategory: Finance
  • Topic: Bank
  • Page: 1
  • Words: 349
  • Published: 14 May 2019
  • Downloads: 17
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Financial contingencies can occur anytime in our lives. We need to be prepared to meet these emergencies with ease. While it is ideal to maintain a separate contingency fund to meet unplanned expenses, it is not a practical solution for all. Not everybody has the luxury to set aside a fixed percentage of their monthly salary towards contingencies. When we don’t have any other backup, we look up to lenders, when we have a requirement.

There are two types of lenders that we come across at this stage. The first type is the one that most of us are well-aware of – the banks. Banks have been in the lending business for many decades now and are considered very trustworthy by the borrowers. The second type of lenders is the breed that has come up in the recent past – alternative financing companies.

As a business owner, we are in constant need of funds to start, develop, renovate or do other modifications. In such cases, whom do we approach – the traditional banks or these new-age alternative business financing? What are the pros and cons of both these lending options? We will see about all that in this article so that you get a clear idea about what would be suitable for your requirement.

Requirements of lenders

ØTraditional bank loans – When you approach a bank for a loan for your business, you should be ready with a lot of documents. Banks ask for your detailed business plan, cash flows for the past few years, projected earnings statement, collateral and other assets that you can furnish and a good credit score. If you can furnish solid collateral, there are higher chances of your loan getting approved and you getting an affordable rate of interest.

ØAlternative business financing – Alternative lenders do not check the financial and business history of their borrowers when they get a request for business financing. The paperwork is quite minimal here, which is why it may be suitable for people who are just starting their business and don’t have any other collateral to serve as a backup for the same.

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