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Small Business Loans From Direct Lenders: 4 Benefits Of Borrowing Directly

Small business loans from direct lenders offer several potential benefits over other financing methods. If you’re looking for business loans or you need a cash advance, it’s in your best interests to weigh the advantages of direct loans against your other options. 

Here’s a look at direct lending and four reasons you might want to use a direct lender for your small business financing needs.

What Are Direct Lenders?

Direct lenders are financial institutions that extend financing to borrowers themselves without going through a third-party network. They may partner with independent sales organizations (ISOs) who find clients for a commission, but the ISO only facilitates the loan rather than lending it themselves.

Direct lenders may be banks, credit unions, or non-bank lenders. They may operate in-person or online. Direct lending products may include loans, credit cards, lines of credit, and other forms of financing. Direct lenders may serve both consumers and businesses.

How Does Direct Lending Differ From Indirect Lending?

Direct lenders stand in contrast to indirect lenders who work through third-party lending networks or secondary markets. For example, auto dealers often submit loan applications from customers to a lending network of financial institutions, who then submit offer quotes to the dealer, known as buy rates. The dealer typically selects one quote and then offers the customer the loan at the buy rate plus an additional fee.

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Indirect lending may occur in other forms. For example, a lender may delegate third-party vendor tasks such as underwriting or insurance processing. However, lenders still are responsible for loan approval and due diligence, regardless of what form indirect lending takes.

Indirect lending is best known in the auto industry, but it also occurs in other industries, including small business financing. For instance, indirect lenders sometimes advance loans for businesses with no credit.

Indirect loans may be easier to qualify for than direct loans. However, a tradeoff is that they also tend to be more expensive.

Why Use Direct Lenders? Four Big Benefits

What are the advantages of going to a direct lender for small business financing? Four of the biggest benefits include:

  • Savings
  • Speed
  • Selection
  • Security

Let’s look at each of these advantages:

1. Savings

Direct loans often cost less than indirect loans. Because you’re dealing directly with the lender, you don’t have to pay a middleman. Plus, if you have a strong income or good credit, you may qualify for better rates. Check your credit score before applying. You can then negotiate terms directly with your loan provider. 

2. Speed

Depending on your lender, direct loans may be faster than indirect loans in some cases. In general, the fewer parties involved in processing your loan, the faster the process can be completed. Direct lenders have the authority to approve your loan without going through a middleman.

In some cases, indirect lenders have long-term relationships with lenders who enable them to expedite loans. But in general, direct lenders have a built-in advantage when it comes to processing loan applications quickly. 

3. Selection

Direct lenders can be more flexible than indirect lenders regarding loan products, rates, and terms. An indirect lender may favor a particular loan product that is more profitable for them or their third-party partner. A direct lender can set their guidelines rather than adhere to third-party requirements.

With this flexibility, a direct lender often can maintain a profit margin while offering you a wider variety of loan products with more options for rates and terms. For instance, Zinch offers options where repayments are based on a percentage of your company’s sales revenue as well as small business loans with fixed payments and term lengths adjusted to your needs.

4. Security

Direct lenders can provide stronger security than indirect lenders. With indirect lenders, your sensitive data gets shared with third parties. With direct lenders, your data stays in-house, reducing the risk of a data breach.

Find Out If You Qualify For A Direct Loan

Savings, speed, selection, and security are some of the benefits that set direct lending apart from other options. When deciding which financing option is right for you, check first to see if you qualify for a direct loan.

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