Small business lending comes in a variety of shapes and sizes. The ones you are probably most familiar with are business loans issued by banks. SBA loans are also commonly known, as are other forms of government-funded loans. And then there are business lenders offering alternative business loans. Certain online lenders specialize as small business lenders, with offerings and services designed for the needs of hardworking business owners who may have difficulty finding other sources of funding.
Traditional Business Lending vs. Alternative Business Lending
To compare traditional business lending and alternative business lending, you first have to understand what we mean by “traditional” and “alternative.” Traditional business lending typically refers to bank loans, but it can also include credit unions, SBA Loans and business credit cards. In short — it’s lending that occurs within a banking institution.
Alternative lending, on the other hand, refers to lending that occurs outside of a banking institution. Most often, that is in the form of online lenders that have been created to fill the gaps underserved by the traditional lending industry.
Annual Percentage Rate (APR)Usually have the best rates available
Annual Percentage Rate (APR)Almost always feature higher APRs
Likelihood of ApprovalIt can be very difficult to get approved for a traditional bank loan
Likelihood of ApprovalAlternative business lenders exist primarily to serve the needs of businesses who can’t obtain traditional financing
Ease of ApplicationNot only can it be difficult to receive approval, traditional loans are difficult to apply for. They often require more paperwork and take longer to underwrite.
Ease of ApplicationWith the aid of technology, alternative business loans can be applied for and received entirely online, in a fraction of the time of a traditional loan.
What Do Business Lenders Look for in a Small Business?
When lenders look at your business, they’re commonly looking at the same several factors. Before applying for a small business loan, make sure you’re prepared in the following areas:
Your Bank Statements
Business lenders like to know that you’ve been raising or making money with your business efforts and how much of your own money you have invested in your business. Showing you’ve made a personal financial commitment in the past — whether that be personal savings or investments — is often important.
State of Your Industry
Small business lenders will look at the market conditions of the industry you’re in as part of their risk assessment. They want to see that the way you plan on using the loan fits in well with those external factors.
Your Business Credit Score
Just as consumer lenders will examine a personal credit score before making a decision on a consumer loan, business lenders examine a company’s business credit score before deciding on a small business loan. Make sure you know what your score is before submitting any applications, and try to improve it as much as possible!
Ability to Repay
Also known as capacity, your ability to repay the loan is perhaps the most significant factor small business lenders look at when making a decision on a small business loan. Your company’s revenue and debts play a big role in that, as does your credit score.
Is Headway Capital a Direct Business Lender?
Yes, Headway Capital is a direct business lender trusted by more than 5,000 business owners. Headway Capital is part of Enova International (NYSE: ENVA), which has been providing online lending to individuals and businesses for more than 10 years.
Headway Capital’s lines of credit come with limits up to $100,000, with no extra costs or hidden fees. We make direct business lending easy — you can log in to your line of credit account at any time and request a draw. Money will usually be delivered to your bank account by the next business day. Because your funds are revolving, that money becomes available to draw again as you repay your outstanding principal balance.
Have any questions? Our customer service team is available at 866.698.8494. You can also find answers to commonly asked questions on our FAQ page.
1We always do a soft inquiry unless your credit file is restricted, in which case we would ask you to contact the credit bureau to lift the restriction. Doing so may result in a hard pull.