Broker or Direct lender?
Either way the goal is to get optimal terms so go with professional integrity every time regardless if it's a broker or lender. Sometimes lenders will give merchants superior terms through a broker than directly because of the consistent volume they provide. Direct lenders also aren't as accessible by individual merchants and they usually operate through web based portals.
Types of Lenders?
There are different tiers of product's depending on industry and credit profile: A-B lenders require higher fico scores for owners but will approve longer terms (12-24 months) and lower rates. C-D lenders are willing to take more risk and lend to otherwise under-qualified borrowers. They provide loans however at times when no other sources will.
How much Paperwork required?
Normally document requirements are minimal; 3 months of bank statements and basic credit info. Sometime for larger amounts ($100k+) Tax Returns are required. In general because there is no collateral on this type of financing there aren't as many required documents and funding is quick - 48hrs.
How fast is funding?
Very fast! In fact some approvals can fund in as little as 48 hrs from initial request. Sometimes there can be delays but rarely do files take longer than a week to fund.
What's my Cost of capital?
Most alternative lenders offer revenue factors otherwise known as merchant cash advance. The way they are priced is total cost per dollar borrowed like, for example a 1.27 factor means the borrower is paying 27 cents per dollar borrowed. The range depends on credit profile, bank revenue and average daily balances.
How long can I use the money?
Terms start at 3 - 24 months depending on the business profile. I have seen 35 month deals but they are rare. On average 9-12 months is a good rule, the payments are divided into equal daily or weekly ACH draws until the payoff amount is reached.
What are the guidelines?
Any business (all industries except adult entertainment) can qualify if they have over $30,000 in monthly revenue. Ownership needs to have minimum 525 fico score and no open defaults. Offers tend to be 1-3 times one month's revenue and amounts can go into the millions of dollars as long as the corresponding monthly revenue is there.
What do lenders look for?
Since revenue factors rely on incoming deposits the higher the number of monthly deposits the better. Also, lenders look at daily balances so a large number of negative balance days is detrimental. Consistency in revenues from month to month is considered good although many industries like construction who have large revenue swings still get good funding terms.
Why Alternative lenders?
It's not a secret that banks have been less help to small business owners so alternative lenders fill that void by making capital accessible to businesses that would be impossible or impractical through a bank. Also, many companies use revenue factors in addition to conventional banking products making them more competitive with more capital on hand.