We mentioned up top that alternative business loans have some advantages over traditional bank loans. Of course, they also have some disadvantages you should know about. Here’s a quick overview to get you up to speed.
In general, alternative lenders have lower application criteria than traditional lenders do.
Most big banks, for example, only lend to businesses that have been around for at least two years, make over $200,000 in revenue, and have a personal credit score in the high 600s.
As you can see from our rankings above, alternative lenders require much less from borrowers. While the exact criteria vary from lender to lender, borrowers with a one-year-old business, $100,000 in revenue, and a personal credit score in the low 600s can likely qualify for an alternative loan.
For the most part, banks offer you longer repayment terms (think a loan term of one to five years), while online lenders have shorter repayment terms (in many cases, a loan term of a few weeks to a few months). As a result, online lenders often work best for short-term financing needs.
You’ll also find that most banks and credit unions require monthly payments on installment loans. Alternative lenders, however, often require you to make weekly payments. Plus, in most cases, online lenders automatically take payments out of your business bank account. Lots of banks do that too, but some at least give you the option for manual monthly payments.