Small Business Financing: 6 Alternatives to Traditional Loans

by | Last Updated: Apr 17, 2022 | Business Strategies | 1 comment

Financing a small business is one of the most notoriously difficult challenges to overcome as an entrepreneur.

Traditional bank loans may have their advantages, but they also come with a long list of requirements and rules to adhere to, which may not suit every small business. And if you lose your financial edge, chances are your business is in for a tough time.

On the other hand, alternative financing might sound a bit shady, but all it is is a way to obtain capital outside the traditional banking system.

Let’s look at some of the best loan alternatives available to small businesses today.

Line of Credit

A line of credit is a way to finance your business, available at a bank or via an online lender. The main difference is that it’s easier to get a line of credit online than in a bank.

If you are not familiar with the term, a line of credit is essentially a sum of money that you can access at any time, just like a credit card. You are charged an interest based on the amount you borrow, not on the amount you could potentially draw. That’s why this is an excellent safety net you only reach for when you absolutely need it.

You can turn to lines of credit when you run out of cash or when you need a ready sum to take your business to the next level.

Flexible Business Finance

Flexible business financing is another great way to find the funds your business needs.

It allows you to determine the amount of money you need and the time you wish to have to pay the loan back. You are free to accept or refuse the terms that come with the loan.

These types of loans are mostly available online and can be a great way to tide over a particularly rough period for a small business. As you are the one dictating the initial structure of the loan, it’s excellent for avoiding a loan you don’t actually need, but are forced into with no other options available.

Online Loans

Sticking to the online world of finance for a bit longer, let’s mention that online loans are rather different from bank loans.

They come with less restrictive terms and requirements and often don’t demand as harsh credit scores and revenues as banks do. They are easy to apply for, and you can usually get your money in less time.

The downside is that they also often come with higher interest rates. Plus, there’s a certain amount of online fraud out there, so you need to double-check your lender before agreeing to anything.

Term Loans

Term loans can be obtained at your brick-and-mortar bank, but they are also widely accessible online, which is where the alternative financing part comes in.

Term loans need to be repaid over a set term and can carry fixed or variable interest rates. As with any other form of online loan, some caution is advised, but you will certainly be able to find an online lending marketplace that will offer terms you can fulfill.


Crowdfunding is a truly modern way to finance your business. Is allows you to tap into peer resources online, and it’s also a great way to market your business, instead of merely funding it.

There are several types of crowdfunding available: with rewards-based crowdfunding, you don’t have to repay any of the money, but you do give your donors something back for their donations. On the other hand, with equity crowdfunding, your investors will get a share of your business.

These types of campaigns need to be innovative, though, as more and more people are competing for attention on crowdfunding platforms, so standing out is key.

Merchant Cash Advances

A merchant cash advance is the final item on our list, and it revolves around the purchase and sale of future credit card income your business is likely to acquire. There are no regular fixed payments involved; instead, your lender will collect a set percentage of your daily credit card sales.

If you have a lot of credit card payments on a daily basis, this might be a great option. You can have access to the money you need in a matter of days, and pay it back over time.

On the other hand, an MCA will be digging into your pockets every single day, so bear that in mind when considering the option. What’s great about it is that it can be utilized by brand new businesses that have a very poor credit score and can’t get funded in any other way.

Caution is advised, but if cash is really tight, an MCA could keep your business afloat while you find your feet.

Final Thoughts

Alternative business financing is increasingly available, forcing modern banks to compete with online marketplaces that offer access to funds more easily, and often with fewer strings attached. Do a little research, and you will certainly find a financial resource that will provide the influx you require.

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