Business owners and entrepreneurs need access to financing just like anyone else. Unfortunately, business loans are not that easy to get. They are also not straightforward in terms of paperwork and underwriting. Getting a business loan could take months. So what if an entrepreneur or business owner is in a hurry? There are options for financing business needs more quickly than conventional lending allows for.
Why Conventional Loans Take So Long
Before listing some of the options for financing business needs in a hurry, there is some value in understanding why conventional loans take so long to approve. Conventional lenders need to prove to themselves that borrowers can truly afford to borrow and have a realistic ability to repay. That means they need to leave no stone unturned in looking into the borrower’s finances and history.
Conventional loans require a ton of paperwork to verify a borrower’s full faith and credit. Paperwork takes time to compile. It takes time to review. And believe it or not, conventional lending tends to involve multiple people who all need to do their part. So yes, it can take months.
There Are Faster Options
Business owners and entrepreneurs will be glad to know that there are faster options. Conventional business loans are not the only game in town. Here are some of the more common alternatives:
1. Hard Money and Bridge Loans
Hard money lending is private lending offered by companies like Salt Lake City’s Actium Partners. Hard money loans and their companion bridge loans tend to go mainly to real estate investors, but lenders are usually willing to entertain a wide variety of business and entrepreneurial needs. Also note that hard money lenders are licensed financial services companies within their respective states.
2. Peer-to-Peer Lending
Peer-to-peer (P2P) is one of the oldest forms of lending known to man. It involves individuals and small groups of people with the financial resources to voluntarily lend to others. Beginning in the early 2000s, P2P lending went digital. These days, the modern P2P environment is all online. P2P lenders may or may not be licensed. Licensing requirements vary from one jurisdiction to the next.
3. Equity Lines of Credit
Where hard money, bridge loans, and P2P lending are better for significant financial needs, smaller sums of money can be borrowed via other means, including equity funding. For example, an entrepreneur might convert the equity in his home into a loan he can apply to business needs. Small business equity lines of credit are also available through retail banks. With an equity line of credit, a small business always has access to a certain amount of financing.
4. Invoice Financing
A fourth option is what is known as invoice financing. In an invoice financing scenario, a business is not actually taking out a loan. Instead, it is selling some of its unpaid invoices to a factoring company in exchange for quick cash. The factoring company pays a certain percentage of the invoices upfront, then pays the rest when those invoices are paid.
Invoice financing is definitely not intended to raise large volumes of cash. So this particular option is for low-volume needs. Its main advantage is that businesses can quickly turn invoices into cash without actually borrowing anything.
Conventional business loans are always an option for business owners and entrepreneurs. The good news is that it is not the only option. There are other options, especially when borrowers are in a hurry. When they cannot wait for conventional loans, they can go with hard money, P2P lending, equity lines of credit, and even invoice finance.