With a new year just around the corner, predictions about the landscape for business in 2024 have begun to pop up all over. One statistic we find especially interesting is that small and medium-sized businesses plan to increase their use of credit next year to support operations and fuel growth. Combine that with the reality that it’s becoming more difficult for businesses to be approved for traditional loans—especially small businesses, whose approval rates have dipped since July 2022—and the future looks promising for non-bank, i.e., alternative lenders.

 

Why Alternative Lenders?

 

Big banks are pulling back on lending for a variety of reasons, including the state of the economy, recent bank failures and poor business performance—as well as increased and more stringent capital requirements. This opens the door for alternative lenders to provide access to credit with flexible and tailored funding solutions.

 

There are three reasons in particular that are supporting the growing popularity of alternative lending:

  • Greater access to capital. Capital is being funneled into alternative lenders by investors seeking better yields, resulting in lenders with deep pockets and the ability to fund quickly—usually within days.
  • More flexible lending criteria. Instead of relying on credit score-based assessments, alternative lenders use integrated technology-driven methodologies to access untapped collateral value and credit strengths—allowing them to qualify companies with underperforming business levels and less-than-perfect credit records.
  • Fewer restrictive covenants. In stark contrast to banks, alternative lenders demand minimal lending covenants—so businesses can use the funds as they choose and may even be able to operate without monthly or quarterly reporting.

 

What Lending Options Are Available?

 

Alternative lenders also differ from banks in that they offer a variety of funding options, including:

  • Invoice factoring. Businesses may sell their outstanding invoices at a discount to get immediate cash, eliminating the need to wait 30–90 days for clients to pay while not incurring debt.
  • Merchant cash advances. Another way to secure funds immediately with no additional debt is by receiving an advance payment made against the business’s projected income, which is repaid automatically via a percentage—usually between 5 and 20%—of daily credit card income.
  • Working capital loans. Businesses with negative working capital—less than double the value of current assets versus liabilities—may benefit from funding to help cover day-to-day expenses, perhaps during their off-season or as they seek to grow.
  • Equipment financing. This type of loan helps businesses purchase new equipment if they don’t have the means to pay in cash—with the equipment itself serving as collateral.

 

The Bottom Line

 

Small and medium-size businesses that will be looking at increasing their credit use in 2024 may have more options than they think. Those that are not able to qualify for traditional bank loans may have more success with alternative lenders, which are focused on saying “yes” to help businesses achieve their goals.

Clear Skies Capital has helped many small and medium-size businesses secure the funding they need to move forward. Contact us today at 800-230-9822 to discuss your specific needs.