Alternatives To Traditional Banks For Small Business Financing

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As a small business owner, traditional banks are the most likely place to go when you need financing to help sustain, grow, or expand your venture. But this is not to say that they are your only option.

In fact, you have a myriad of alternatives to traditional banks when seeking financing for your small business. 

From new forms of technology like digital lenders and fintech startups to peer-to-peer lending sites and angel investors, there are many different types of funding out there, all of which offer something different.

Let’s take a look below at the list of alternatives to traditional banks for small businesses that need financing:

Microloan Programs

Microloan programs are also another great way to get the funding you need for your small business. Also considered a beneficial option when refinancing a business loan, these loans are relatively small, typically under $50,000, so they're not as risky for lenders to offer.

Many microloan programs also offer no-interest loans or below-market rates, making them an affordable option for entrepreneurs looking to grow their businesses.

To find a microloan program in your area, you can start by checking with your local Small Business Administration (SBA) office. You can also check out the SBA website or contact them directly via the contacts indicated to get more details about the requirements and qualification criteria.

Once you're approved by a microloan program, the funds will usually be disbursed within two weeks!

Digital of Fintech Lenders

As the name suggests, digital lenders are a relatively new option for financing, where the lenders use technology as the backbone of their service. Small business owners can borrow from lenders directly or indirectly, with the former typically having more favorable terms than the latter.

The best thing about digital lending is that it is faster and easier to secure loans compared to traditional financing options.

Fintech and digital lending allow you to apply for a loan from anywhere around the globe via a mobile app, the lender’s website, or a desktop application. As you can see from SoFi's personal loans website, they can provide funds within 24 hours (or less), compared to traditional banks where you may have to wait weeks or months before getting access to capital.

Small business owners have several options beyond traditional banks to get the financing they need for their businesses. But it's important to do your research and know what you're getting into before you apply for any kind of funding.

Crowdfunding Sites

Crowdfunding sites are a great option for small businesses that don't have a good credit score or collateral, but they do come with their own challenges. You can use crowdfunding sites as a platform to gain exposure and raise money from people who believe in your idea.

However, it’s important to note that these platforms usually charge a fee, which could be anywhere from 5% to 10% of the total funding raised. And assuming the campaign fails to reach its goal, you may not receive any money at all!

Angel Investors

Angel investors are another great alternative for small business financing, especially for entrepreneurs who are just getting started. These are usually wealthy individuals and accredited investors who provide startup funding to companies in exchange for equity and warrants.

In most cases, they have a personal connection with the company and are involved in its operations. Some of the ways to find Angel investors include networking events and online platforms such as AngelList.

Peer-To-Peer Lenders

Peer-to-peer lending is an online marketplace where borrowers and lenders are matched together to complete a loan. This is a great alternative for small business owners who want quick access to financing, but don't want to deal with the hassle of traditional banks.

Borrowers can get loans from other users by posting their requests on a peer-to-peer lending platform like Upstart. Applications are usually reviewed by an underwriter, who checks the borrower’s credit score and other factors before they're approved or denied based on their ability to repay the loan back over time with interest (usually at least 10% APR).

Lenders can also choose whether they want their money lent out through short-term or long-term investments depending on how much risk they're willing to take.

Approaching Venture Capitalists 

If you're not familiar with venture capitalists (VCs), they are the "investors" who provide the capital to get your business off the ground. They invest their money in companies that are attempting to grow and expand quickly by adding new products or services.

When a VC invests in a company, they make money by getting carried interest or returns on their investment from the company’s proceeds. They may also earn from what is called venture fund management fees as limited partners of the company. For getting found best is to list it as an offer on SmartMoneyMatch, as there are no charges for it.