For a small business looking to improve their working capital and promote business growth, a traditional bank loan can often be difficult to obtain. In addition to the stricter, post-recession regulations banks have to abide by, the average small business loan, which averages between $50,000 to $80,000, doesn’t provide enough profit to make it worthwhile. It cost the bank just as much to underwrite a $1 million dollar loan as it does a $100,000 loan. This has created an upsurge in small business funding from alternative finance companies.
Alternative Finance Myths
There are, unfortunately, some common misconceptions that can make business owners leary about considering alternative finance. Bypassing this funding option could cause them to miss out on an opportunity for business growth. When looking to obtain funding, it’s important to get past these misconceptions and thoroughly understand the benefits alternative finance companies can offer.
Myth – Alternative finance is only for businesses who don’t qualify for a bank loan.
As previously mentioned, alternative financing can be an option for businesses turned away by the banks but that isn’t the only reason to consider it. Many business owners prefer alternative financing for the unique benefits traditional bank loans don’t offer.
Often business owners need capital immediately to take advantage of an opportunity or cover an unexpected expense. The lengthy approval process of applying for a bank loan is not beneficial for those in need quick capital. In addition to traditional underwriting, alternative finance companies use proprietary analytics and technology to provide fast and efficient access to capital. They also offer many short-term financing options, many which don’t require putting up vital business assets as collateral.
Myth – Alternative finance is only for businesses that are desperate.
Many believe that alternative financing is only intended for businesses that are struggling and about to fail. The idea that alternative financiers will work with any business regardless of their financial condition is nothing but a myth. An in-depth evaluation process is conducted to make the business applying for financing has a solid financial foundation and that a partnership would be beneficial to both parties. Alternative finance companies are looking to work with businesses with a viable opportunity for growth and just need a bit of extra working capital to make it happen.
Myth – Alternative finance can have a negative impact on your credit score.
This too is another common misconception. Not only does alternative finance not have a negative effect on your personal credit score, but it can also help to improve it. Some business owners in need of immediate capital will tap into their personal finances. Alternative financing can be used to eliminate business debt impacting your personal finances or even help avoid it from happening at all. Over time, this can have a positive impact on your credit score.
Myth – the alternative finance industry is unregulated.
While this may have been true to some degree in the early days of the industry, today alternative financiers are governed by state and federal lending regulations as well as being required to comply with contract and commercial law. Because working capital is provided in a completely different way, alternative finance companies do not have to meet the same the same set of regulations a bank does.
Grow Your Business with Alternative Finance
At CFG Merchant Solutions, we can help your business grow faster with a variety of small business funding options. Whether it’s a merchant cash advance, invoice factoring or any of our other funding options, we will guide you in choosing the perfect solution for your individual business needs. Our team brings to the table more than 60 years of institutional investment banking experience in the credit, commercial finance, and capital markets.
We are a privately-owned and operated specialty finance and alternative funding platform. We focus on providing capital access to small and mid-sized businesses (Merchants) in the U.S. that have historically been underserved by traditional financial institutions and may have experienced challenges obtaining timely financing. Contact us or apply online today!