Exploring Alternative Business Loans with Mantis Funding

Alternative business loans provide a flexible and accessible financing option for many small businesses that may not qualify for traditional bank loans. This guide will walk you through the ins and outs of alternative business loans, covering various aspects to help you make an informed decision.

Understanding Alternative Business Loans

Alternative business loans serve as a terrific option for companies seeking a funding method that falls outside of traditional bank loans and credit lines. These alternatives cater to organizations that might struggle with traditional lending criteria or require quicker access to capital, making them particularly valuable for startups and small businesses.

Let’s dive a little deeper into the concept of alternative business loans and the process for obtaining one:

What Are Alternative Business Loans?

Alternative business loans are non-traditional financing options that companies can use to secure funding outside of conventional banks or credit unions. These loans are often provided by private investors, peer-to-peer (P2P) platforms, or crowdfunding, offering a more flexible approach to business financing.

Alternative loans have gained popularity, especially among small- and medium-sized companies that may not qualify for traditional bank loans due to stringent credit requirements or lack of collateral.

Difference Between Traditional and Alternative Lending

The primary difference between alternative and traditional business loans lies in the accessibility, speed, and flexibility of the funding. Traditional business loans typically involve lengthy application processes, stringent credit checks, and the requirement of significant collateral. In contrast, alternative loans are designed to be more inclusive, catering to businesses with diverse financial profiles, including those with lower credit scores or limited collateral.

The Alternative Lending Process

The alternative lending process is designed to be straightforward and efficient, providing companies with quicker access to funds compared to traditional lending. Let’s break down how it typically works:

• • Application submission: The process begins with the business submitting an application to an alternative lender. This form is usually simplified, requiring basic information such as the organization’s name, revenue, length of operation, and the amount of funding needed.
  • Document submission and evaluation: Once the application is submitted, the lender typically requests additional documents to assess the business’s financial health. Commonly required documents include bank statements, tax returns, and financial statements. 
  • Approval and funding: After the evaluation, if the lender finds the company eligible, they provide an approval decision, often within a few days. The business is then presented with loan terms, including the interest rate, payment schedule, and any associated fees. 

Types of Alternative Business Loans

Once you’ve determined that an alternative business loan is a viable option for your organization, it’s time to assess which type of funding best suits your unique needs. When evaluating your choices, business owners should consider several key factors, including their current financial situation, cash flow patterns, loan purpose, and payment capacity.

Some of the most common types of alternative business loans include:

Term Loans

Term loans are a type of financing where a company borrows a specific amount of money from a lender and agrees to repay it over a predetermined period. These loans can be either short-term (typically up to one year) or long-term (ranging from one to ten years or more). Term loans are commonly used for significant business investments, such as purchasing equipment, expanding operations, or covering other large, one-time expenses.

One of the primary advantages of term loans is their predictability. Since the interest rate and payment schedule are fixed, organizations can plan their finances with greater certainty. This stability is especially beneficial for budgeting and long-term financial planning.

Business Lines of Credit

A business line of credit serves as a flexible financing option that provides companies with access to a predetermined amount of funds that they can draw from as needed. Unlike a traditional loan, where a lump sum is borrowed and repaid over time, a line of credit allows businesses to borrow up to a certain limit, repay it, and borrow again as necessary. 

Business lines of credit are particularly valuable in scenarios where an organization needs ongoing access to working capital. For example, a retail company experiencing seasonal fluctuations in revenue might use a line of credit to purchase additional inventory before the busy season and then repay the borrowed amount once sales pick up. Similarly, a business facing unexpected expenses, such as equipment repairs or emergency costs, can draw from their line of credit to cover these costs without disrupting their operations.

Equipment Financing

Equipment loans are a type of financing specifically designed to help businesses purchase or lease equipment necessary for their operations. These loans are secured by the equipment itself, meaning that the equipment serves as collateral for the loan. As a result, if the business is unable to make payments, the lender can repossess the equipment to recover the loan amount.

Equipment loans serve as a terrific option for companies that require essential equipment to maintain or expand operations. For instance, a construction company might use an equipment loan to purchase heavy machinery, such as excavators or bulldozers. A restaurant may also use an equipment loan to buy kitchen appliances that are vital for food preparation.

Invoice Factoring

Invoice factoring acts as a financing method where businesses sell their outstanding invoices to a factoring company in exchange for an immediate cash advance. This allows them to access funds tied up in their accounts receivable without waiting for customers to pay. Once the customer pays the invoice, the factoring company deducts its fees and remits the remaining balance to the company.

By factoring their invoices, organizations can receive a substantial portion of the invoice amount upfront, ensuring they have the necessary funds to continue operations without disruption. Additionally, invoice factoring can be easier to obtain than traditional loans, as the focus is on the creditworthiness of the business’s customers rather than the business itself. 

Revenue-Based Financing

Revenue-based financing (RBF) is a type of alternative funding (not considered a loan or alternative business loan) where companies receive working capital in exchange for the purchase of a percentage of their future revenue. Typically, the payment continues until a predetermined amount, usually a multiple of the original funding, is paid back.

RBF is especially useful for organizations with predictable and recurring revenue streams, such as SaaS companies, subscription-based services, or e-commerce businesses. These types of businesses often have a clear line of sight into their future revenue, making it easier to manage the variable payment structure of RBF.

Applying for Revenue-Based Financing with Mantis Funding

Applying for revenue-based financing involves a streamlined process that differs from traditional loan applications, focusing primarily on a business’s revenue performance rather than its credit history or collateral. It’s a relatively straightforward procedure compared to conventional applications, as it’s designed to let companies know whether or not they’ve been approved in just a few days.

When applying for financing from Mantis Funding, here are the steps you’ll need to follow:

Required Documentation

In order to qualify for revenue-based financing from Mantis Funding, businesses simply must have been operating in the U.S. for more than 6 months, while owning 50% or more of the company. Low credit scores are OK!

When applying, you’ll need to submit your business owner’s name, social security number, business name, tax ID, and the last three months of the business bank statements. A copy of your business owner’s driver’s license and a voided check from your business bank account are also required.

Step-by-Step Application Guide

One of the key advantages of RBF is the efficiency of the entire process; documentation is easy to submit and you’ll know whether or not you’re approved within a few business days.

At Mantis Funding, the application process looks like this:

• • Application: You’ll apply for funding by filling out our straightforward application form, accompanied by the documents listed in the above section. If the offer is accepted, the business owner then signs our financing agreement, which details the offer, payment structure, and terms. Additional documentation may be required on a case-by-case basis.
  • Approval: The approval process begins as soon as the underwriting team at Mantis Funding receives the application and required documents. The business owner is notified within 24 – 72 hours if their business has been approved for financing.
  • Financing: To receive financing, our offer must be accepted by signing the financing agreement. Then Mantis Funding will complete the bank verification and coordinate a funding call with the business owner to confirm, acknowledge, and accept the terms of the agreement. Once the funding call is completed, we’ll deposit the funds into the business bank account within one business day.
  • Renewal: Mantis Funding can then renew the agreement to provide the business with additional capital at the time that the most recent financing agreement is 65% fulfilled and the payments are in good standing.

Tips for Qualifying

There are several steps you can take to improve the likelihood of securing revenue-based financing from Mantis Funding and other business finance companies.

Key areas to focus on include:

• • Maintaining strong revenue streams: Ensure your business has a steady, predictable revenue stream. RBF lenders prefer companies with stable, recurring revenue, such as those with subscription models.
  • Improving credit scores: While RBF is more focused on revenue, a strong credit score can still enhance your application. Pay down existing debts, avoid late payments, and rectify any errors on your credit report.
  • Accurate bookkeeping: Keep your financial records accurate and up-to-date. Well-organized financial statements and balance sheets will give lenders confidence in your organization’s financial health.
  • Preparing a solid business plan: Provide realistic and detailed revenue projections that demonstrate your business’s capacity to pay the RBF over time. You should also clearly outline how you plan to use the RBF funds, whether it’s for expansion, marketing, or new product development.
  • Showcasing a strong customer base: If applicable, highlight high customer retention rates, which can indicate the reliability of your revenue streams. Additionally, demonstrate a diversified customer base if possible, as it reduces the risk associated with revenue depending on a few clients.

Comparative Analysis: Revenue-Based Financing vs. Traditional Loans

Revenue-based financing offers a plethora of benefits for borrowers, particularly for startups and small businesses, as it allows them to secure the capital they need without the pressure of rigid payment terms or having to give up equity or business collateral to secure financing.

Let’s examine how RBF stacks up against traditional bank loans:

Flexibility and Speed

The processing time for revenue-based financing is also generally much faster than that of traditional loans. Because RBF lenders focus primarily on the business’s revenue and potential for growth rather than extensive credit checks, the approval process is streamlined. Advanced algorithms typically enable lenders to quickly evaluate a company’s revenue projections, leading to funding within days rather than weeks or months.

Qualification Requirements

The qualification requirements for revenue-based financing are generally less stringent than those for traditional loans, making RBF more accessible to a broader range of businesses. 

Traditional loans typically require organizations to meet strict criteria, such as a strong credit score, substantial collateral, and detailed financial documentation. Lenders conduct thorough assessments of the borrower’s creditworthiness, often focusing heavily on credit scores and the availability of assets to secure the loan. 

On the other hand, RBF lenders focus primarily on a company’s revenue streams and growth potential. As long as the business has consistent and predictable revenue, it stands a good chance of qualifying for revenue-based financing. RBF lenders are more interested in an organization’s ability to generate future income, which allows for a more inclusive approach to financing.

Pros and Cons of Alternative Business Loans

Though the upside of alternative business loans is significant, it’s not always the best option for every type of business.

On one hand, these loans provide flexible and accessible funding options for companies that may not qualify for traditional bank loans due to a variety of possible reasons. However, alternative loans can also carry higher interest rates, shorter payment periods, and varying terms that may pose risks if not carefully managed.

We recommend thoroughly weighing all potential pros and cons before making a commitment. Factors to consider include:

Pros

• • Flexible eligibility criteria: Alternative funding sources often have more lenient qualification requirements compared to traditional loans. This includes accommodating businesses with less established credit histories or fewer tangible assets.
  • Faster approval process: Many alternative lenders use automated systems and real-time data analytics to expedite the application process, leading to quicker approval and disbursement of funds.
  • Minimal restrictions on funds: Unlike some traditional loans that may impose restrictions on how the funds can be used, alternative funding often allows organizations to utilize the capital for various purposes, such as operational expenses, marketing, or growth initiatives.
  • Adaptable payment terms: Many alternative funding solutions also offer adaptable payment schedules, which can better align with a company’s financial situation.

Cons

• • Payment periods: Some alternative financing options, such as short-term loans, have shorter payment periods which can result in higher monthly payments. Shorter terms usually involve more frequent payments, which might strain cash flow and impact an organization’s financial stability.
  • Identifying reputable lenders: The prevalence of alternative funding options means that businesses must carefully research and vet lenders to avoid predatory practices or unfavorable terms.

Additional Alternative Financing Options

In the ever-evolving landscape of business financing, alternative loan options like crowdfunding and P2P lending have emerged as popular avenues for securing capital. These innovative funding models bypass traditional financial institutions, connecting companies directly with investors or the public to raise the funds they need. 

These funding methods are often enticing for organizations seeking to connect directly with supporters and investors, as they foster a sense of ownership and loyalty that can be invaluable for long-term growth.

Crowdfunding Platforms

Crowdfunding involves raising small amounts of money from a large number of people, typically through online platforms, to finance a project, product, or business venture. This method leverages the power of the internet and social media to reach a broad audience, allowing businesses to present their ideas or products to potential backers.

Two of the most popular online crowdfunding platforms are Kickstarter and Indiegogo. 

Kickstarter is more known for supporting creative projects and innovative products, often focusing on technology, design, and art. Projects on Kickstarter typically operate on an all-or-nothing funding model, where funds are only collected if the project meets its goal by the end of the campaign. Indiegogo, on the other hand, offers more flexibility with its funding models, allowing campaigns to either keep the funds raised, even if the goal isn’t met, or operate on an all-or-nothing basis.

Peer-to-Peer Lending

Peer-to-peer lending is a form of alternative financing where individuals or investors provide loans directly to borrowers, bypassing traditional financial institutions. This model operates through online platforms that connect borrowers with lenders, facilitating the loan process. Borrowers simply present their funding needs and financial profiles on the platform, while lenders choose to fund loans based on their preferences and risk tolerance.

Small businesses can benefit significantly from P2P lending due to its accessibility and flexibility. For one, peer-to-peer lending platforms often have more relaxed qualification criteria compared to traditional banks, making it easier for companies with less established credit histories to secure funding. Additionally, the application process is typically faster, with quicker approval and disbursement times, allowing businesses to access capital more rapidly when needed.

Conclusion

Alternative business loans encompass a wide variety of different funding methods, all with their own unique benefits. They act as a fantastic course of action for businesses that require immediate access to capital, but don’t want to give up shares or control of their company.

Small businesses and startups in particular often find these options attractive, as they offer unmatched flexibility for companies that may face irregular cash flows, seasonal fluctuations, or have difficulty meeting conventional lending criteria. As the business landscape continues to evolve, alternative business loans stand out as an essential tool for smaller companies seeking to thrive in a dynamic and competitive environment.

Mantis Funding boasts unparalleled experience in creating custom revenue-based financing options for businesses across a wide variety of different industries. We’ve helped our partners in various sectors realize their organizational vision!

Interested in learning more? Reach out to us via our online contact form, apply now or give us a call at (877) 494-1499 today!