Non-Traditional vs Traditional Term Loans

Non-Traditional vs Traditional Term Loans
Caitlyn Rose
on March 15, 2020
Read in 2 min

Without a steady and reliable supply of cash, your business cannot survive. Both traditional and non-traditional term loans might offer the money you need at terms you can handle. Read on to learn what differentiates old-school term loans from their less conventional counterparts.

Funding OptionsAPRDo you qualify?Time in BusinessAnnual Revenue
Funding Option
Lendio Get Started
APR
Starting at 5%
Estimated Apr
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
At least $100K
Funding Option
Kabbage. Learn More
APR
1.5% - 10%
Monthly Fee Rate
Do you qualify?
N/A
MIN CREDIT SCORE
Time in Business
At least 1 year
Annual Revenue
At least $50,000

What’s the Difference Between Traditional Term Loans and Non-Traditional Loans?

The first step is to clarify what is meant when we refer to a ‘term loan.’ When most people think of loans, the traditional term loan is usually what comes to mind.

Traditional Term Loans

Traditional term loans have a very straightforward structure. You borrow at either a fixed or variable interest rate and make regular payments until the loan is repaid. The great thing about these loans is that you always know how much you owe, when your loan period ends, and exactly how much your minimum payment is.

Non-Traditional Loans

So what is it that makes a loan “non-traditional?” This language actually refers to the lender from whom you procure the loan. In the past, banks were the primary entities who granted these types of arrangements. However, recent economic conditions have spurred change in the business lending industry. There’s been a sharp decrease in the number of small businesses approved to receive traditional loans through a standard bank.

Types of Non-Traditional Loans

These days, traditional term loans are being replaced by non-traditional arrangements through institutions other than big banks. There are numerous choices available to qualified small business owners. No matter what you decide, it’s crucial that you review all the options and choose what’s right for your business needs.

Crowdfunding

One of the most talked-about funding streams in recent years is crowdfunding. With online crowdfunding, you make a case to potential lenders as to why your company deserves a loan. Also called peer-to-peer loans, you’ll want to have a personal credit score above 620 for crowdfunding. You should also be ready to put your own credit on the line in case you default on the loan.

Invoice Financing

Another popular method for quick access to financing is invoice financing (or invoice factoring.) With invoice financing, you can sell your outstanding invoices to a lender in exchange for a lump sum of cash. It’s a powerfully simple way to get a quick infusion of fluid cash. Keep in mind though, the cost of this form of financing is higher than most.

Merchant Cash Advance

A merchant cash advance is another non-traditional lending mechanism you can use. Great for companies that process a lot of debit and credit card transactions, an MCA makes financing easy for those with poor credit. Although costs and interest rates are high, the approval process is quick, making this ideal for emergency situations.

SBA Loans

On the more conventional side (but still more flexible than big banks) are loans sponsored through the Small Business Administration (SBA). This independent federal agency provides incentives to lenders who then furnish short- and long-term loans to stimulate small business.

Now that big banks are shying away from small business lending, alternative loan service providers have rushed in to fill the gap. Carefully assess the nature of your business, the amount of cash you need and the time that you believe it will realistically take for you to repay the loan. Armed with these facts, explore both traditional lenders and alternative financing options. You may be surprised to see how much financing you can qualify for with a non-traditional lender.

Funding OptionsEst. APRMax. Loan AmountMin. Credit Score
Funding Option
OnDeck Capital
Est. APR
Starts with
9%
Max. Loan Amount
$ 500,000
Min. Credit Score
600
Get Started
Funding Option
kabbage_logo_vertical_min
Est. APR
Starts with
24%
Max. Loan Amount
$ 250,000
Min. Credit Score
560
Get Started
Funding Option
blueVine
Est. APR
Starts with
18%
Max. Loan Amount
$ 5,000,000
Min. Credit Score
600
Get Started
Funding Option
Seek_Capital
Est. APR
Starts with
9%
Max. Loan Amount
$ 500,000
Min. Credit Score
680
Get Started
Funding Option
Lendio
Est. APR
Starts with
5%
Max. Loan Amount
$ 500,000
Min. Credit Score
500
Get Started
Caitlyn Rose Finance Journalist

Caitlyn is a business consultant and writer with an intimate understanding of business finance.

An entrepreneur at heart, she supports small local businesses whenever she can.