If you’re looking for funding in the form of a business loan, it is important to understand what your two fundamental options are. We will be discussing these traditional and nontraditional lenders, in today’s article.
Traditional lenders are what most people think of when attempting to obtain a business loan. These are your neighborhood banks or large corporate conglomerate banks. They are typically underwritten through investment capital, which are investment banks. Although some banks do in fact run savings, checking, and lending all from the same funding source, this is typically no longer the case.
In order to obtain funding of this type you must have better than average credit, as well as consistent income for yourself and for your business. You will likely be required to furnish proof of income, as well as additional documentation, in order to obtain funding. Rates are lower for traditional lenders than for nontraditional lenders, in most cases.
Nontraditional lenders are becoming far more popular as a source of business loan funding. The reason for this is the increasing difficulty of obtaining funding from traditional lenders, in the current financial markets. This is simply a form of private capital funding, which is operating under a different set of criteria than banks.
Typically, these lenders, also referred to as niche lenders, will look at your company in much the same way as venture capitalists would look at it. They are interested in the potential gain of your company more than its history. Typically, rates are much higher than with traditional lenders, in order to offset additional risk.