Why So Many SMB’s Are Considering Alternative Business Financing in 2023 [Updated for 2024]

Tom Siska

Last Modified : Jan 24, 2024

Fact-checked by: Bruce Sayer

Today, many businesses are assessing their operations to accommodate changing economic conditions and technological advancements. At the same time, many are assessing their financing to ensure it is aligned with these changing needs. For SMBs needing reliable business financing, keeping up with new developments in the financial world can be essential in making informed decisions.

In this article discover why alternative business financing is becoming the preferred option for so many SMBs. Learn the advantages of this type of financing and the multiple funding options available to improve cash flow and provide easy access to working capital. This information will help you make more informed decisions and guide you toward choosing your company’s best business financing option in 2024.

What is Alternative Financing?

Gone are the days when business owners would walk into their bank, answer a few questions, and sign paperwork to acquire business financing. Unfortunately, it’s no longer that easy as bank financing trends change due to unfavorable market conditions. Approval rates for traditional financing continue to decline relative to pre-pandemic levels. In fact, by some estimates, traditional banks are now declining up to 80 percent of small business loan applications.

And as the rates of decline continued to grow, an alternative solution outside the traditional banking system was needed. Enter alternative financing. And while alternative financing has been around for many years, the current environment has caused these lenders to step up their game and develop highly competitive and more accessible options.

Today, the best alternative financing offers quick and flexible funding solutions outside traditional financial channels. They feature easy qualification requirements, few loan covenants, and more control of capital management. Leading alternative lenders now offer a variety of products and service options to maximize cash flow and provide more access to working capital than traditional lenders.

Why is Alternative Financing the preferred option?

Post pandemic, and in the face of economic uncertainty, many companies are finding themselves in urgent need of more reliable business financing to support operations and position their companies for growth. As they began to search for solutions, the benefits associated with alternative lending began to come to the forefront. Alternative financing is now a very viable option for fast, flexible funding without excessive lender oversight.

Several distinct benefits separate it from traditional business financing options. The following are the four major benefits of alternative financing:

1. Easier qualification requirements: Qualification for alternative financing is much, much simpler than applying for a traditional bank loan. Credit decisions are based on the quality of assets and the creditworthiness of the client’s customers, not on the client’s personal or company worth. With the ability to do a deep dive into expansive databases to uncover credit information inaccessible to conventional lenders, alternative lenders can assess a borrower’s qualification status quickly and approve business financing within days. As a result, many see qualification requirements as being more balanced, achievable, and the first step to faster financing.
2. Faster approval process:Traditional lending institutions are notorious for having long approval processes. Conventional credit assessment processes, extensive business performance audits, and multiple sets of eyes that must review every application can draw the process out for weeks or months. This isn’t ideal when you need quick funding.

Meanwhile, alternative lenders can approve an application within days, sometimes hours, depending on the company’s industry and the complexity of the situation.

3. Greater access to lender expertise: Alternative lenders are often well-experienced in their customers’ industries. Businesses in transportation, staffing, healthcare, and numerous other sectors benefit from lender’s financial knowledge, industry insights and familiarity with economic trends to assist in maximizing financial efficiency and accessing more capital.
4. A multitude of options: Most urgent business financing requirements call for short-term cash infusions. Whereas banks are more entrenched in the provision of a business line of credit as the primary solution to managing cash flow, alternative lenders provide a multitude of funding options. By providing a variety of business financing solutions, alternative lenders can offer more access to more capital, faster and more conveniently than traditional lenders can provide.

Common Types of Alternative Financing

Alternative lenders offer a multitude of funding options to provide more access to working capital with few covenants, less lender oversight, and more flexibility to expand credit limits.

The following represents a selection of alternative financing options commonly used to ensure reliable cash flow and maximize access to working capital.

• Invoice factoring: This longstanding form of financing has been revived, modernized, and popularized to become a mainstream form of business financing. It is the selling of invoice receivables at a discount in exchange for immediate payment. Today, alternative lenders leverage advanced technology to transfer funds within minutes to hours of verifying invoices against purchase orders and confirming delivery receipts. This enhanced speed of funding thereby creates instant positive cash flow, and fast access to working capital.
• Asset-based lending: Asset-based lending (ABL) is a form of debt financing. It allows you to secure a loan based on the value of your business assets, such as inventory, machine and equipment, real estate, accounts receivable, and even intellectual property. This differs from traditional bank ABL funding as it is far more flexible with fewer covenants attached and the ability to pair it with other lending facilities. In short, by choosing an ABL solution through an alternative lender, your company has more creativity in managing debt to ensure you keep pace with growth.
• Lines of Credit: An alternative lender can provide a line of credit, similar to what a bank provides, but with two significant differences. First, an alternative lender’s line of credit gives you the ability to spend on credit as needed up to a limit, but with minimal lender oversight. This means the facility is easer, and less time consuming to manage. Secondly, the facility has no restrictive covenants that prevents the borrower from pursuing additional forms of credit. The borrower retains the ability to take on additional business financing if needed.
• Equipment refinancing: This specialized form of asset-based lending converts the equity tied up in working equipment into a significant injection of capital. By leveraging the value in long-term assets to provide cash in hand, companies can improve operations, take on new contracts, fund an acquisition, support a turnaround strategy, or consolidate debt.
• Visa commercial cards: One of the latest financing additions that the best alternative lenders offer is the Visa Commercial card program. With this card, businesses can now create and control a true expense management system. The card provides the cash you need when you need it to cover costs and the control you need to regulate expenses. Business owners can issue cards to their employees with spending limits and categories for where the cards can be used. Specific alternative lenders can provide this powerful tool to customers that would not usually have access to this type of card program.

Make an informed decision

If its time to re-evaluate your finances, make sure you consider your alternative financing options. And when you do this, be sure to research the most experienced and most  flexible lenders.  Consider all your options by comparing the pros and cons of each lender, their funding products, and the additional benefits they bring to the table. You’ll likely find a financing solution tailored to your business needs.

Conclusion

Today, alternative lenders are well-resourced with technology, financial expertise, and innovation to provide funding solutions to businesses in growth mode, in transition, or managing a turnaround situation. Where traditional lenders may fall short of meeting the financial needs of cash starved SMBs, alternative lenders are now providing more flexible funding solutions to meet business goals. Multiple products and services can be utilized separately or in unison to improve cash flow and provide maximum access to capital quickly. The best alternative lenders now support small, medium, and large businesses in any stage of development through the peaks and valleys of economic cycles.

Alternative lenders have a vested interest in helping your business grow and succeed. It is easy to see why alternative business financing is becoming the preferred option for SMBs in 2024.

eCapital’s team of industry experts works to thoroughly understand your business before recommending tailored business financing solutions to meet your capital requirements. Whether it’s a rapid asset-based line of credit or a strategic long-term financing plan, our skilled, dedicated, and friendly team structures specialized alternative funding as unique and distinct as your business.

For more information about how our experienced team supports businesses’ capital requirements through all stages of development, visit eCapital.com

Tom Siska

Tom's impressive career includes transformative successes, solidifying his stature in the financial sector. Notably, he drove impactful Sales & Marketing strategies at Sterling Commercial Credit LLC, culminating in a game-changing acquisition. At Grasshopper Bank NA, he played a pivotal role in establishing a thriving commercial and asset-based lending group and his skill in integrating and overseeing acquisitions at North Mill Capital underlined his strategic acumen. His talent for nurturing winning teams and delivering transformative outcomes has yielded an impressive $100MM in stakeholder value across diverse startup and turnaround ventures.