Source:metro.news

What Borrowing Options Do People Have Other Than Going To A Bank?

Financing, may it be personal or for business, is notorious for being difficult to obtain when you’re trying to take one out from a bank. If you’re applying for a loan with a bank, a guarantee that you’ll get approved doesn’t exist. Add to it the fact that most banks require a stellar credit from the applicant. And if you’re a business owner, your business should have been in operation for at least 2 years. It’s no wonder why people are turning to alternative options for financing.

The industry for alternative financing has been growing exponentially. For individuals in need of funding to cover emergency financial gaps, the alternative financing industry’s expansion has been a boon.

With most of the alternative financing options presented below, one can apply and get funding much more easily and quickly than he or she would with a loan from a bank.

1. Online Lenders

Source:w7news.com

From personal loans to mortgages, financing products that you usually see offered by banks are also offered by online loan companies.

It’s just that online loans and bank loans differ in a few important ways. First, in terms of income level, monthly or annual revenue, time in business, and credit score, online lenders come with less stringent requirements compared to banks. That leads to the second important difference between online loans and bank loans – it’s easier to apply with online lenders and the funding of the loan takes less time too. Therefore, the advantages that make online loans stand out are its convenience and accessibility.

If you’re still on the fence about whether or not online lenders are worth the try, visit this site to understand how an online loan company can help you.

2. Credit Unions

Source:spero.financial

These alternative options for banks work by an entirely different set of rules. They differ from banks even though they may resemble a regular bank when you see them from the outside.

Credit unions are actually non-profit cooperatives. These financial institutions maintain their non-profit status by restricting membership to a specific group of individuals. For example, their members can be residents of a particular community, or those working at or attending a specific educational institution.

Credit unions typically offer lower interest rates because non-profit organizations enjoy a tax advantage. When it comes to products like savings accounts, however, credit unions tend to place higher rates.

3. Microlenders

Source:economictimes.indiatimes.com

Another borrowing option other than banks are microlenders. A microlender offers a microloan, which is a small loan amounting close to USD$5,000 – USD$10,000. Microlenders also offer low interest rates on their financing products.

Start-up businesses are the ones who typically receive microfinancing for their working capital. In addition, microlenders often serve disadvantaged or under-represented groups such as those with bad credit, minority-owned businesses, veteran-owned businesses, and woman-owned businesses.

The small amounts of money that are involved in microloans are something that banks have not been interested historically. Fortunately, in recent years, alternative lenders have entered the microloan space.

4. Community Development Financial Institutions

Source:wikipedia

Within the US, CDFIs have been serving the under-served and economically-disadvantaged communities. They’re financial institutions offering financial services, including financing. It’s essential to note, however, that CDFIs aren’t government entities.

The title of being a community development financial institution can be taken on by several different institutions, including:

Community Development Corporation,

Micro-enterprise Development Loan Fund,

Community Development Venture Capital Fund,

Community Development Loan Fund; and

Community Development Credit Union.

5. Merchant Cash Advance Company

Source:digital.com

Although merchant cash advances (MCAs) can be more expensive than a regular loan from a bank, they’re relatively easy to get. Just like short-term loans, MCAs have a factor-rate fee structure.

A merchant cash advance is an advance on an individual’s future earnings. So, technically, it isn’t a loan. What happens is that an MCA company fronts the borrower a set sum of money. As a form of repayment, the lender will recoup the advance, including the interest, as a percentage of the borrower’s daily sales. Therefore, depending on your sales performance for a certain day, there will also be fluctuations in the amount you pay daily.

Until an MCA is fully repaid, the merchant cash advance company will keep taking a cut from the daily sales of the borrower. That being said, there’s actually no set deadline in repaying a merchant cash advance generally.

Since MCAs have higher interest rates than bank loans, it’s not really recommended to get one if you can qualify for a financing product with other alternative lenders. Both struggling businesses with bad credit and even brand-new businesses, though, have MCAs as one of their few available sources of financing.

Make sure that the merchant cash advance company that’s giving you the advance doesn’t practice double-dipping if you do decide that an MCA is your best financing option. Double dipping is the practice of charging borrowers with interest on interest. In determining the approximate number of repaying days and the approximate daily payment, your MCA company of choice should also utilize a merchant cash advance calculator. The merchant cash advance calculator is important so you have an idea whether or not the cash advance you’re getting is a good deal.

6. Accounts Receivables Financing or Factoring Company

Leveraging the outstanding customer Accounts Receivables (AR) of your business may be possible if you own a business that deals with customer invoicing. That means you can use the AR of your business in exchange for AR factoring or financing. There’s a difference between AR financing and AR factoring, though, and that’s something that you have to keep in mind.

With AR financing, you’d use your business’ outstanding invoices as financing collateral. However, the collection of payment from your customers would still be your responsibility. When factoring accounts receivables, on the other hand, you’ll receive 70-90% up front of your business’ total outstanding receivable value. The rate, though, is dependent on the account’s age generally. The responsibility of collecting the outstanding invoice would then be assumed by the factor company.

7. Credit Card Company

Source:econreview.berkeley.edu

If you’re looking for a way to pay expenses without the need to take out a loan, credit cards are a borrowing option that’s maybe worth looking into. Having a credit card on deck can be a smart idea even if you don’t really need to make a huge purchase right now. It can be useful when you do need it. You can use one to pay for small or large-ticket items while building your credit profile and earning rewards.

Make sure to pick a credit card company that gives users the highest rewards or miles for the types of buys you make most when choosing one. One example of a credit card reward is cash-back amount. That’s because some credit card companies are ideal for home supplies purchases while others reward travel expenses better. Also, if you can find a credit company with a 0% introductory annual percentage rate for the first year, then that’s your better option.

Note, however, that a good or excellent credit score is generally one of the major requirements of the best credit card companies out there.

8. Peer-To-Peer Lenders

Source:debt.org

P2P or peer-to-peer lending doesn’t involve a traditional financial institution. This financing form occurs between individuals or “peers” directly. That’s why loan amounts are typically small. The terms of loans taken out from peer-to-peer lenders are also pretty short. P2P short-term loans only last from 1 to 5 years.

The Internet’s infrastructure and social networking power contributed so much to P2P lending’s success. Lenders and borrowers can come together in online marketplaces offered by P2P lending websites. Often, several private lenders share in partially funding each borrower’s loan amount.

P2P lending sites help lenders determine the risk involved in lending funds to borrowers. They do this through an assessment of the creditworthiness of each borrower as well as through identification and verification services.

In peer-to-peer lending, tax payments, repayment schedule, as well as the terms and conditions of the loan as determined by both parties will be covered by precise documentation.

9. Crowdfunding Sites

Source:blog.sagipl.com

For business owners, crowdfunding is a smart way of raising funds from their peers online. Charity, equity, rewards, and debt are the four types of crowdfunding.

With equity crowdfunding, someone will invest in your business and the investor gets a share of a certain product your business is offering or your business itself. With rewards-based crowdfunding, you agree to giving your backers something in exchange for their donation. That means there’s no need to repay the money you received.

It’s essential to note that only some types of businesses are prioritized by crowdfunding sites. Some crowdfunding websites focus on individuals who create an innovative, consumer product like a new tech gadget. Others are geared toward people who are into creating a movie or music album or some other sort of media.

Final Thoughts

People who are thinking of borrowing from the alternative lenders from the list above should exercise their due diligence before committing to anything. That’s because some platforms for alternative financing are relatively new and lack regulation. That, however, doesn’t change the fact the you have more financing options other than just going to the bank.


Ricardo is a freelance writer specialized in politics. He is with foreignpolicyi.org from the beginning and helps it grow. Email: richardorland4[at]gmai.com