Here are some types of small business loans to consider from an alternative lender.
Term loan
Term loans are lump sum financing used for medium to large business expenses, such as purchasing new equipment or remodeling a building. Online lenders typically offer funding from $5,000 to $500,000 or more.
Interest rates vary, but once determined, your monthly payments should remain the same. You can choose between a short-term business loan (three to 24 months) or long-term business loan (five to 25 years), depending on your business’s level of need.
Line of credit
Similar to a credit card, a business line of credit offers access to revolving funds where you can borrow up to your credit limit as often as needed. Funds can be used for any business-related expense, and you only pay interest on what you withdraw — although some lenders charge monthly or annual maintenance fees. Credit limits can range from $1,000 to $250,000 or higher.
Equipment financing
Equipment financing can fund assets like manufacturing equipment, computers, vehicles or other large machinery needed for your business. Since the equipment typically acts as collateral to reduce lender risk, eligibility requirements tend to be more lenient. However, the lender can seize the equipment if you fail to repay the debt. Some lenders offer up to 100% or more in financing, with limits going up to $1 million and beyond.
Merchant cash advance
A merchant cash advance (MCA) is an alternative form of business financing where you receive a cash advance in exchange for a percentage of your business’s future debit and credit card transactions. MCAs can typically provide between 50% to 250% of your monthly sales, depending on the lender and your qualifications. However, MCAs charge factor rates instead of traditional interest rates. Once converted, APRs can run in the triple digits, making MCAs a more costly way to borrow.
Invoice factoring
A business may sell its unpaid invoices to a factoring company in exchange for money up front, typically up to 80% to 95% of the total value of the invoices. In turn, the company collects money from the customer, taking a small fee before passing the remaining funds onto the business owner. Invoice factoring is often confused with invoice financing, which involves taking out a loan against the invoices.
Peer-to-peer lending
With peer-to-peer lending (P2P), borrowers are connected with individual or commercial investors via a marketplace lending platform. P2P financing usually only offers personal loans, which typically have more lenient eligibility requirements and fewer fees than traditional business loans. However, you will likely have fewer options, with loan amounts ranging from $2,000 to $50,000 There may be some state-imposed restrictions as well.
