Alternative Business Loans: Support for Small Businesses

Alternative Business Loans

Alternative business loans are essential for the growth and success of small businesses. Despite the negative press the industry sometimes receives due to isolated incidents, alternative lending plays a crucial role in helping small businesses thrive. These loans provide opportunities that traditional banks may not offer, supporting companies that make up 99.9% of all U.S. businesses.

According to NDP Analytics, $10 billion in online lending between 2015 and 2017 generated $37.7 billion in economic output and created nearly 359,000 jobs. Without these loans, many people would be without employment.

Addressing the Negative Perception

The Hype and Misconceptions

The Alternative Business Loans lending industry has been criticized through sensationalist media reports highlighting isolated cases of predatory practices and abuse of power. These reports often exaggerate the negative aspects, painting the entire industry in a bad light.

While these incidents are troubling, they are not representative of the industry as a whole. Many businesses and customers have positive experiences with alternative lenders. The focus should remain on understanding the industry’s broader impact rather than sensationalizing a few negative stories.

Understanding the Real Issues

The practice of usury—charging exorbitant interest rates—is sometimes used to criticize the industry, but this is not an accurate representation of how alternative lenders operate. Like any sector, alternative lending has its bad actors, but this should not tarnish the reputation of the entire industry. Misuse of power is prevalent in many fields, yet it doesn’t define the whole industry.

How Alternative Business Loans Work

Alternative Lending Explained

Alternative business loans offer a solution for businesses that might not qualify for traditional bank loans, particularly startups or those with less-than-perfect credit. Alternative Business Loans lenders fill a critical gap, enabling businesses to grow without the high interest rates and strict terms often associated with traditional banks.

In these transactions, businesses sell a future stream of sales at a discount. All terms are transparent, and borrowers are not charged hidden fees or interest beyond what is agreed upon. This model provides a straightforward and manageable way for businesses to secure funding.

Confessions of Judgment

Sometimes, alternative lenders use documents called confessions of judgment. These are signed agreements where one party allows the other to obtain a judgment without a lengthy legal process if certain conditions are breached. While this might seem daunting, it serves as a necessary protection for lenders, ensuring that there is recourse if the borrower fails to meet their obligations.

Staying Informed and Choosing Wisely

Avoiding Scams and Staying Smart

It’s important to be cautious and informed when dealing with any lender. While there are instances of corruption, most Alternative Business Loans lenders provide valuable services. Educating yourself and consulting with local lenders and small business owners can help you navigate the lending landscape effectively.

A recent Wall Street Journal article highlighted the benefits of online lending, featuring stories of business owners who have found success with alternative lenders. For example, Javid Jenkins of Getting Better Fitness found success with PayPal Working Capital after initially being unsatisfied with a loan from Kabbage.

The Bottom Line

Alternative business loans offer significant benefits for small businesses, providing essential support and opportunities for growth. While there are challenges and negative perceptions, the industry continues to be a vital resource for many entrepreneurs. Restoring the reputation of alternative lending is crucial to ensuring its continued positive impact on businesses and communities.

By focusing on the opportunities and success stories within the industry, we can better appreciate the role alternative lending plays in fostering economic growth and stability.