Alternative Business Loans

Top 5 Alternative Business Loans for Small Businesses

Ezra Cabrera | October 10, 2019


    When small business owners need funding, they automatically turn to banks in the hopes of procuring a loan. Unfortunately, traditional bank lenders aren’t so keen on loaning money to small business owners. In fact, only 27.3% of small businesses applying for loans qualify for traditional bank loans. With the bank’s stringent requirements, thousands of small business owners remain financially unsupported. Fortunately, alternative business loans are here to solve the pressing need for small business funding.

    These days, small-time entrepreneurs looking for additional financing can apply for business loans from different lending institutions. Depending on the company, alternative lenders usually offer the same deal as the banks to business owners. Some lenders may have higher rates compared to the others. So, it’s always important to consider different companies when you’re planning to apply for business loans.

    5 Most Popular Alternative Business Loans

    Unlike traditional loans, alternative financing has more lenient requirements, convenient and easy applications, and quicker funding. There are different types of alternative loans – from short-term loans to invoice financing. Alternative business loans are ideal for small business owners who cannot qualify for traditional loans or need immediate funding.

    Here are the top five alternative financing solutions for small businesses.

    1. Invoice Financing

    Invoice financing allows business owners to sell pending invoices to third-party companies at a discount. Lenders will give you up to 80% to 90% of the total invoice value, and give you the remaining percentage (minus a transaction fee) once your customers pay up. Unlike traditional loans, invoice financing is technically not a loan because the lump sum lenders give you is an advance of the money you’re already owed. You can free up working capital without having to wait for 30, 60, or 90 days before receiving payment.

    This type of financing is great for businesses with outstanding invoices that need immediate funding. It’s also an ideal funding option for business owners with poor personal credit because invoice financing relies on the creditworthiness of your customers rather than yours.

    2. Business Lines of Credit

    The concept of a business line of credit is much like a credit card. Lenders assign you to a revolving credit line, which means you can freely withdraw funds from it when needed. You only have to repay the money you’ve withdrawn, as well as the interest on the amount you’ve withdrawn.

    You can use a business line of credit for additional working capital, inventory purchases, bridging cash flow gaps, and more. If you need a safety cushion or an emergency fund for unforeseen expenses and business opportunities, you can rely on business lines of credit to get you the cash you need.

    3. Merchant Cash Advances

    A merchant cash advance is also not a loan, but an advance against your future credit card transactions. Lenders will give you a lump sum and collect a percentage of your daily credit card sales as repayment. One of the downsides of a merchant cash advance is that it’s expensive. However, the fast funding process and minimum requirements may offset the cost.

    Related: Top 3 Businesses that Benefit from Merchant Cash Advance

    Merchant cash advances are great for small businesses that can’t qualify for bank loans or SBA express loans from the Small Business Administration. It’s also ideal for those who need short-term financing.

    4. Inventory Financing

    Inventory financing can be used to purchase inventory for your business. You can secure the loan with existing inventory, the inventory you’re looking to purchase, or business assets. Inventory financing typically costs lower than other types of short-term loans, which makes it a viable option for small businesses. You can use inventory financing to purchase inventory, so it’s best used by retail businesses looking to increase inventory levels.

    5. Equipment Financing

    As the name suggests, equipment financing provides you with the funds needed to purchase equipment and machinery. You also have the option to lease the equipment instead of purchasing it. In this way, you’ll have added flexibility in terms of monthly payments. If you opt for a loan, lenders will give you a lump sum which you can repay in fixed monthly payments. The equipment you’re looking to purchase serves as the collateral for the loan, which makes it easier to qualify. Equipment financing is a great option for business owners looking to purchase equipment, vehicles, and machinery.

    Related: 4 Reasons Why Equipment Financing is the Best Loan Option for You

    Apply for Alternative Business Loans Today!

    Alternative business loans are a great option for business owners:

    • seeking immediate funding;
    • ineligible for bank loans, and
    • looking for convenience and a simpler business loan application process.

    Alternative lenders can streamline business loan applications. A lot of companies provide fast and easy loan applications and can get your business funded within 24 hours. When used right, business loans can open many doors to success and help you grow your business.

    About the Author

    Ezra Neiel Cabrera has a bachelor’s degree in Business Administration with a major in Entrepreneurial Marketing. Over the last 3 years, she has been writing business-centric articles to help small business owners grow and expand. Ezra mainly writes for SMB Compass, but you can find some of her work in All Business, Small Biz Daily, LaunchHouse, Marketing2Business, and Clutch, among others. When she’s not writing, you’ll find her in bed eating cookies and binge-watching Netflix.