Economy Pushes Businesses toward Nontraditional Loans

This Dallas Morning News article (may require free registration) confirms the trend that many businesses look beyond banks for loans. The article features a business that wants to expand its inventory after four years of steady business. The owner says that he tried going to banks, but they don't pay attention to a business' success. Instead, the owner of Acadia Sports only has to submit four months' worth of bank and credit card statements to receive an approval for a $50,000 loan. Furthermore, the loan comes through within days. The article also confirms half of the banks that lend to small businesses have tightened their standards especially in the past three months. Besides, the banks have their hands full with mortgage stuff. Some owners use peer-to-peer loans, which connect business owners with individual lenders -- like a MySpace for loans. Chad Brookins, a financial analyst at a law firm, loaned $24,000 to an Arizona business. The loan comes with a 14.9% interest. Brookins confirms the business makes all of its payments on schedule. While peer-to-peer loans provide opportunities for individuals to make money off interest, it can be a risk when you don't take due diligence in picking the loans to provide. According to the article, credit cards continue to lead as the source of financing. About 57% of business owners rely on credit cards. However, the news isn't good. Credit card terms are going downhill. Considering banks turn down 7 out of 10 business loans, businesses need to learn about alternative financing options. These alternatives look at different areas of a business in determining a business' qualification for a loan and the interest rate. In researching other options, be sure to ask what the lender uses to base its decision and the terms of a loan.