Non-Traditional vs Traditional Term Loans

Non-Traditional vs Traditional Term Loans
Caitlyn Rose
on February 1, 2016
Read in 2 min

Without a steady and reliable supply of cash, your business cannot survive. Both traditional and non-traditional term loans can 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.

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 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 a 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 case 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.

Caitlyn Rose Finance Journalist

Caitlyn is a small business consultant and editor for LendGenius with an intimate understanding of business finance.

She’s an entrepreneur at heart & supports local businesses whenever she can.

Featured

9 Ideas on How to Build Business Credit Fast

by Taylor Gordon on June 6, 2017
If you want to learn how to build business credit to access better financing options, this is the article for… Read more

Minority Business Loans – Discover 36 Opportunities Here

by Taylor Gordon on May 15, 2017
You may be searching for minority business loans because you have an idea for a great new business. Or perhaps… Read more

Small Business Loans for Women – Compare 38 Options in One Place

by Rebecca Hosley on May 15, 2017
When it comes to small business loans for women, knowledge is power. Women are not new to entrepreneurship, but they… Read more

Debt Service Coverage Ratio Explained in Acute Detail

by Amy Fontinelle on May 10, 2017
Sara owns a thriving restaurant, and she thinks the time is right to expand. Specifically, she wants to expand the… Read more

Microloans: What They Are & How To Take Advantage

by Eric Goldschein on May 1, 2017
Microloans refer to a category of financing where you can qualify for short-term working capital (or even start up capital) with low… Read more

How to Calculate ROI – Making Your Small Business Loan Count

by Dustin Clendenen on April 24, 2017
Here's a controversial thought: Not all debt is bad debt. Since not all of us are independently wealthy or particularly… Read more

Small Business Funding – Debt Financing vs Equity Financing

by Rebecca Hosley on April 22, 2017
Everything You Need to Know About Small Business Funding in 2017 Deciding to start your own business is a huge… Read more

Small Business Loans for Veterans – A Definitive Guide to VA Business Loans

by Eric Goldschein on April 7, 2017
Small business loans for veterans are available through various channels and are also often supplemented with business development tools. Business… Read more

EMV Compliance: The Good, The Bad, & The Ugly

by Amy Fontinelle on March 7, 2017
As a savvy business owner that accepts credit and debit cards, you should aleady know the dangers of failing to upgrade… Read more
Join For Free & Start Browsing Loans