Lenders earn revenue by charging interest on loans and credit, and fees for services. Loans are evaluated using a variety of factors, including the entrepreneur’s creditworthiness, defined by each lender’s unique criteria.
Lenders prefer that entrepreneurs be prepared and organized prior to approaching with their loan request. This preparation will help demonstrate the owner’s commitment and due diligence.
Alternative lenders are non-banking institutions. They include for-profit companies that provide advances to businesses based on future sales, invoices, contracts, receipts, and community lenders such as OBDC Finance.
Alternative lenders have more flexible lending criteria than conventional lenders (e.g., banks). For example, collateral may not be required, or credit scores may not matter as much as the overall credit history.
A note about community lenders: many are not-for-profit institutions that lend limited dollar amounts to businesses operating within their region.
The application process can be more document-intensive than a bank, and the turnaround time on a loan decision may be longer.
Conventional lenders typically have stricter lending criteria where collateral and an above-average credit scores are required. They offer a diverse selection of credit-score driven products. Banks are primary examples of conventional lenders. Typically, less documentation is required and decision time on a loan request can be much shorter than for an alternative lender.
Entrepreneurs seeking financing for their startup or existing businesses should visit their local bank first. Banks offer a diverse range of financing products and ancillary services. They also have strong referral networks which include a listing of alternative lenders (including community lenders) within the area.