Getting a loan from a bank is not an easy feat. After the 2008 crash, banks started tightening up their lending criteria, and many small business owners started feeling the squeeze. Thankfully, a number of lenders rose to fill in the void left behind by the banks and new means of access to financial capital was created.
Below, we have outlined 5 of the best non-bank loans in detail for 2019. If you are looking to get a loan quickly without any hassle, then these could be the best options available to you, facilitated by some of the more well-known online lending platforms.
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1. The Kabbage Business Line of Credit
Kabbage has really come a long way in recent years, offering a slick business credit card, an easy to use application, and an intuitive dashboard to monitor all credit-related activity. The reason Kababge is one of the best non-bank loans for SMEs is its easy application process, clear fees, flexibility, and usability.
The online dashboard makes it easy to view all expenses and is great for reports and expense tracking. Kabbage lines of credit are also easy to qualify for compared to the majority of other lenders. No personal guarantee is required.
Kabbage offers business lines of credit only, not term loans. The difference is that a term loan is an upfront sum paid back with interest in monthly installments. With a business line of credit, the line is drawn upon as needed, usually for business operational expenses. To qualify for a loan with Kabbage, applicants are required:
- To have a credit score of 560 or above.
- To be in business for at least 12 months.
- To have at least $50,000 in annual revenue
The line of credit extends all the way up to $250,000. It is easy to qualify for, very quick, and perfect for business expenses. For business owners who are stuck for cash, it is the ideal alternative to bank loans.
2. The LendingClub Peer to Peer Term Loan
Lending Club is arguably one of the biggest alternative lending marketplaces in the world. It connects loan generators and loan applicants through its platform. What is actually happening is that the loan is being ‘crowdfunded’ – a $500,000 loan might be funded by 500 different lenders. This means there is less risk for the lender, which makes it easier for you to get a loan.
If you want a Lending Club loan, then you will need a credit score above 600. The business loan can be used for debt consolidation, equipment financing, working capital, business repairs, or some other business-related purpose. There are no prepayment penalties, the application process is swift, and the term lengths vary from 1 – 5 years. The loan can be funded in less than a week.
3. The OnDeck Term Loan or Line of Credit
OnDeck offers both business lines of credit and terms loans to small businesses. The requirements for OnDeck tend to be a little stronger in comparison to other non-bank loans. Businesses will require:
- $100,000 in annual revenue.
- A credit score of 600 and above.
- At least 12 months in business.
- At least 5 deposits to the business checking account each month.
The exact rates and term lengths on offer will depend on whether you are getting a business line of credit or a term loan with OnDeck.
The median age of OnDeck businesses is 7 years and the average credit score is 680. OnDeck is transparent, and each applicant will get a ‘Smart Box contract’ to view all of the fees. There is a one-time origination fee for term loans and a $20 monthly maintenance fee for lines of credit.
One thing to remember with OnDeck is that the repayment schedule is weekly or daily, not monthly. This is different from nearly all other loan providers.
4. Invoice Financing From Fundbox
Fundbox also provides business lines of credit for businesses that deal with irregular invoices. Qualifying for Fundbox is easy. There is no minimum credit score, and you only need to have $50,000 in annual revenue as well as 2 months activity in a supported accounting software platform.
Invoice financing is perfect for businesses who deal with long-term invoices. In certain industries, such as construction, invoices may take between 1-3 months to get paid. This can lead to cash flow problems for certain businesses.
For business to business merchants, it is possible to get paid instantly with Fundbox for invoices instead of having to wait. Fundbox will transfer the funds the same or the next business day. In return, you pay a small fee for instant funds. For this, the customer has to agree to pay through Fundbox. Fundbox will provide s quick credit check on all customers. This is very useful for small businesses who are looking to accelerate their growth.
5. Alternative Non-Bank Loan Options
There are other lending avenues that you can take if you are not prepared to undertake a stressful bank loan application. Consider:
- Venture Capital – If you have a new high-growth idea, then you could try to get a venture capital firm to finance and mentor you. While it is not easy to do this and you will give away equity in your business, the profit margins can be huge. You need to have a top-notch business plan and be extremely organized to take advantage of this form of capital.
- Angel Investment – This is similar to venture capital, but on a smaller scale. An accredited investor can help you out with advice and financial backing to put you on the right path. These are investors with a net worth over $1 million or an annual income above $200,000. Again, you will need to pitch strongly to these ‘angel’ investors – they won’t just hand you the money.
- Crowdfunding – There are a large number of crowdfunding platforms out there, including IndieGoGo, GoFundMe, and KickStarter. While there is no such thing as easy money, you might be able to find some donators to your cause.
- Grants – Grants.gov and other resources provide financial backing to many business startups in certain areas. Applying for grants is an art and needs to be done carefully – but it is definitely worth doing. You need a high-quality grant writer to maximize your chances, but it could be worth it.
- Microfinance – There are multiple microfinance options available, though they are typically aimed at minorities and female entrepreneurs. Grameen America is one such example, though there are many more. Microfinance is usually described as any kind of finance below $50,000 and is often given to underserved businesses and communities.
- Contests – You can also consider entering contests to maximize your business exposure and take advantage of cash prizes. Even if you do not win, your business could gain some notice from investors and you might be able to network with other contestants and observers.
It should be mentioned that borrowing from family and friends is still one of the most dominant kinds of finance for US small business owners. You can repay them in the future or give them an equity stake in the business.
Just be careful when doing this, as it can easily go awry and sour relations between close friends and family, especially if the business goes bankrupt. A formal approach might be best where the terms and conditions of repayment are laid out quite strictly.
Going to banks is no longer a strict necessity in terms of finding capital for your new enterprise, as it is such a long and time-consuming process that can be a very stressful undertaking, especially if you get rejected.
There are a plethora of financial options available to you in the modern age. While banks may offer better rates, you really need to consider if it is worth the wait and the hassle of getting prepared. Your mental and emotional resources might be put to better use elsewhere, and time is money.