Small business owners in today’s economic environment need a plethora of financing options. As business grows ever more competitive, staying nimble has become a necessity. When opportunity knocks, small businesses have to answer, or their competition will do it instead of them. Often, this means waiting for a traditional business loan is not an option.

On top of the competition, economic downturns, rising expenses, and emergencies can put businesses in a cash crunch. When this happens, traditional business loans are often unavailable. To persevere through these times and drive for success, non-traditional business loans are the best option.

Non-traditional business loans are unsecured. Below is an explanation of unsecured business loans and several of the best unsecured business loan types on the market.

What Are Unsecured Business Loans?

Traditional business loans are secured by collateral

Generally, banks provide these traditional loans and require three layers of collateral: business assets, personal assets, and personal guarantees. The business assets pledged as collateral include items such as real estate, equipment, and vehicles. Personal assets pledged include homes, cars, and other big-ticket items. A personal guarantee is a pledge by the business owner to repay the loan. If the borrower defaults, he or she is personally liable and can be required to repay the outstanding balance using personal funds.

Non-traditional business loans only require a personal guarantee

In contrast, non-traditional business loans require only a personal guarantee. While this means that the borrower is still held responsible if he or she defaults, the lender has no right to seize items that were pledged as collateral. As with any other loans, the lender has the legal right to take the borrower to court if the money is not repaid.

Other Benefits of Non-traditional Business Loans

Eliminate several risk factors

First, because none of the business’s assets have been pledged, the lender cannot seize assets the business needs to remain in operation, such as vehicles, equipment, and real estate. A bank’s seizure of this type of collateral has put many small businesses out of business. Second, the borrower does not have to worry that the lender will foreclose on his home or other personal assets.

Provide added flexibility and convenience

In addition to eliminating these risk factors, non-traditional business loans provide business owners with added flexibility and convenience. Traditional business loan applications take several months. The process is arduous, requiring a great deal of documentation and verification of collateral. Traditional bank business loans also provide little flexibility. The loan amount is fixed at the outset, along with the monthly payment and payment schedule. If the business owner suddenly finds him or herself in need of additional funds, he or she has to go through the months-long application process all over again, with no guarantee of approval.

Traditional lenders have little flexibility with payment arrangements. If the business experiences a decline and misses payments, traditional lenders often take action to seize collateral rather than negotiating a payment plan or other settlement. With non-traditional business loans, the lender is more likely to offer flexibility to help the business get payments back on track.

Non-traditional business loans come in the following forms:

1. Small Business Credit Cards

credit cards, mastercard, visa cards, cash

Small business credit cards are often overlooked as a funding source. Though the limits are low compared to other funding sources and the APR averages from 15 to 25 percent, they are exceptionally simple to apply for and use. They offer all of the convenience of a personal credit card, while also providing the business with a ready credit line in case of emergencies.

2. Receivable Financing

Cash flow is a challenge for many small businesses. Often, the problem lies in too many accounts receivables. When customers delay payments, your business can find itself in a crunch. When this disrupts operations and stifles expansion, your business is in danger.

With receivables financing, your business receives the full balance of your accounts receivables, usually those due in 90 days or less, minus the lending company’s fee. The receivables serve as the collateral, so none of the business or the business owners assets are at risk. The lending company also takes responsibility for collections.

3. Merchant Cash Advance

If your company has large credit and debit card receivables, the MCA is a convenient and relatively risk-free way to obtain a non-traditional business loan. Using this structure, the lending company provides you with a lump sum cash payment in exchange for a percentage of your daily credit and debit card receivables.

This works great for retail businesses. It also provides security because the fee is always based on a percentage instead of a dollar amount. If receivables decline during a slow period, the loan payments decline correspondingly.

4. Short-Term Business Loans

When you’re in a hurry, a short-term business loan is a great option. They usually fund within 2-3 business days. However, these non-traditional business loans have very high APRs, averaging around 40 percent. If the loan is paid off quickly (within a few months) this option often still ends up cheaper than a traditional, long-term loan. If full repayment in a short time is unfeasible, a longer-term loan option is probably preferable.

5. Peer to Peer Business Loans

Lenders provide these non-traditional business loans by funding each loan through a combination of money provided by traditional lenders and individual investors. In terms of qualification and application process, they are much easier than traditional loans.

However, they have more requirements than short-term business loans, merchant cash advances, and receivables financing. Small business owners looking for rates that are more competitive with traditional business loans may find the right option through peer to peer lending.

6. SBA Loan

small business administration logo

The small business administration (SBA) offers long-term business loans to help small businesses grow. These loans are meant to encourage entrepreneurship and stimulate economic growth. As such, qualification is less stringent than traditional banking loans. Though SBA loans are a great resource to start expanding a business, they are less flexible than other non-traditional business loans.

In Conclusion

When you’ve put your heart and soul into creating a business, the last thing you want is to have it jeopardized by short-term cash flow problems. You also want to seize all business opportunities. To keep your business growing and healthy, it’s crucial to have a plethora of options for non-traditional business loans at your fingertips. With all the lending options available, there is no need for any business to suffer from lack of funding. If you are a business owner, consider applying for one of these great non-traditional business loans today!

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