Key takeaways
- You can look into speedy alternatives to bank business loans in the form of loans from an online lender, invoice financing or merchant cash advances
- The SBA offers community-based loan programs that are lenient with approvals
- Bootstrapping, grants and equity financing help startups avoid debt
Banks may be one of the most popular sources of financing, but they aren’t the only option for getting a small business loan. If you don’t meet the lender requirements from a bank, need fast funding or simply are looking for different funding terms, you can still find alternatives to bank business loans elsewhere. Here are the alternatives to consider.
Types of alternative business funding
Type of funding | Best for |
SBA loans | Affordable loans, slow funding needs |
Credit unions | Lower interest rates and fees, local lending needs |
Online lenders | Speedy funding, bad credit loans |
Community development financial institutions | Businesses in underserved communities, more accessible requirements |
Peer to peer lending | Lower credit and revenue requirements, slower funding |
Invoice financing/factoring | Speedy funding, high-invoice volume businesses |
Merchant cash advance | Speedy funding, High credit and debit transaction volume |
Equity financing | Need for mentorship, partial township |
Grants | Debt-free funding, slower funding |
Crowdfunding | Debt-free funding, businesses with established customer or support base |
Bootstrapping | Now or low debt, Entrepreneurs with capital to invest |
SBA loans
The Small Business Administration designed its SBA loan programs to help small businesses get access to business financing. It offers affordable interest rates capped by the SBA and long repayment terms like 10 years for working capital uses, and are offered exclusively to business owners who have exhausted other traditional funding options.
SBA loans from a bank often have tighter lending criteria similar to conventional business loans, and come with additional requirements around US citizenship and residency. They also have longer approval times than standard business loans, making them a slow funding option.
SBA loans might be a good option for you if:
- You’ve exhausted all other lending options.
- You’re looking for a more affordable loan.
- You don’t need funding in a hurry.
Bankrate insight
As of July 2025, the SBA has 64,231 and $29,191,186,900 in 7(a) loans, with an average loan size of $454,472, according to the SBA’s Weekly Lender Report.
Credit unions
Credit unions are not-for-profit institutions. Instead of stockholders, a credit union’s members own and control the organization. This can lead to credit unions offering lower interest rates or fewer business loan fees than you might find with banks. Membership requirements can vary between credit unions, with some requiring you be a member of the military or other qualifying organization. Credit unions also tend to be more limited in services, products and locations.
A credit untion might be good for you if:
- You want to have a personal stake and ownership over your loan.
- Your local credit union offers better rates and terms than your bank.
- You’re okay with limited services, products and locations.
Bankrate insight
The approval rate for loans at credit unions tends to be slightly higher than large banks, with 47 percent of applicants being fully approved and 27 percent partially approved for funding, compared to 45 percent full approval and 25 percent partial approval at large banks, according to the 2025 Small Business Credit Survey.
Online lenders
Online lenders offer a digital application and loan approval process, which offers more accessible funding process than lenders bound to a physical location. These lenders may use technology to determine whether you’re eligible for a loan, and often offer lenient eligibility requirements compared to banks. They also can offer extremely fast funding, often in a matter of one or two business days after approval.
Online lenders often have lower loan maximums and may charge higher rates for applicants who need a bad credit business loan. On top of standard loans, online lenders offer other types of business financing, like lines of credit, invoice-based loans and merchant cash advances.
Online lenders might be a good option if:
- You want an accessible loan application process.
- You don’t meet bank credit requirements.
- You need fast funding.
Community development financial institutions
Community development financial institutions (CDFIs) provide loans, banking and other financial services to low-income, minority or otherwise underserved communities. They are given backing from the US Department of Treasury in exchange for providing education, lending and equitable access to funding for their communities.
A CDFI can be a bank, a credit union, a loan fund or a depository holding. While the types of funding offered by the institutions differ, they often come with more accessible requirements, alongside education and resources for businesses starting out. Depending on the CDFI, you may need to have residence in the area they serve, or be opening a business in an underserved community.
A CDFI might be a good option if:
- You live in or are opening a business in an underserved community.
- You don’t qualify for traditional business bank loans.
- You’re looking for a loan with additional educational and supportive resources.
Peer-to-peer lending (P2P)
Peer-to-peer lending involves borrowing money from individual people rather than traditional lenders like banks and credit unions. Usually, borrowers and lenders work through a platform like Kiva or LendingClub where borrowers can apply for loans, and people can invest their money into those loans.
The benefit of peer-to-peer lenders is that they offer easier qualifications, allowing you to qualify even with no or poor credit and low revenue. The drawback is that rates and fees can be much higher for peer-to-peer loans than conventional or online loans if you have bad credit. There also may be limited funding availability based on demand, with some peer-to-peer lenders having waitlists.
Peer-to-peer lending might be a good option if:
- You don’t qualify for traditional bank loans.
- You’re starting out with low revenue.
- You don’t need funding quickly.
Invoice financing/factoring
If your company finds itself waiting on customers to pay the invoices you submit, you may turn to invoice financing to get cash quickly. With invoice financing, you use the money you’re due based on the invoices you’ve submitted as collateral to get a loan. The lender will give you cash upfront with a set repayment plan and interest rate. As you get paid for those invoices, you can repay the debt.
Invoice factoring also uses the invoices to determine eligibility and how much funding you receive. What makes it different is that the factoring company actually buys your invoices from you. When your customer pays the invoice, the money goes directly to the factoring company rather than you. The factoring company buys your invoices for between 70 and 90 percent of their face value, giving it room to make a profit. The company will then take out its fees and return any extra money to you once clients make good on the invoices.
These loans tend to have low or no credit requirements, and instead are based on how many invoices you have and how much your customers owe you. Keep in mind that fees and interest rates tend to be much higher, and you may rack up high penalties if your customers fail to pay in a timely fashion.
Invoice factoring or financing might be a good option if:
- You have a steady supply of invoices.
- You need funding quickly.
- You have low or limited credit and revenue.
Merchant cash advances
Merchant cash advances (MCAs) are an option for companies that make many sales through debit and credit card purchases. With an MCA, the lender gives you a lump sum of cash based on a percentage of your future card-based sales, which you then repay with your sales.
MCAs are useful for companies that require fast funding and that don’t meet traditional loan credit requirements. Keep in mind, however, that the factor rates and fees can be quite high – sometimes going into APRs in the 90s. Due to the high rates and aggressive daily or weekly repayments, you can easily get trapped in a cycle of debt until you make enough revenue to pay back the loan.
An MCA might be a good option if:
- You make most of your sales through credit and debit card transactions.
- You need funding quickly.
- You have a low or no credit score.
Equity financing
Many small business owners turn to equity financing to finance building or expanding their business without going into traditional debt. Equity financing involves getting funding from investors, usually by giving away ownership of your company.
You can get equity financing through:
- Angel investors: Individuals that provide financing and mentorship, Shark-Tank style.
- Venture capital firms: Financial organizations made up of investors aiming to finance high-potential startups.
- Initial Public Offering (IPO): Releasing shares of your company to the public as an entry into the stock market.
Grants
Grants are cash awards that you don’t have to repay as long as you qualify for them, giving you a great alternative to business loans from a bank. Depending on the terms, you might have restrictions on how you can use the money or be free to spend it however your business wishes. There are many places to look for grants. Many local or state organizations and federal agencies offer grant programs that you can apply to. There are also privately run grant programs funded by businesses or non-profit organizations.
Eligibility for these grants will vary, and funding can be competitive. You may want to look for grants in your industry or within community to increase your chances of getting the grant.
Grants might be a good option for you if:
- You don’t need funding in a hurry.
- You don’t want to go into debt.
- You qualify for a specialized or local grant.
Crowdfunding
Crowdfunding is a way to raise money from everyday people rather than a traditional lender. You’ll need a strong community network to make this form of financing successful or have a product that generates a lot of excitement. There are four primary types of crowdfunding:
- Donation-based crowdfunding asks people to donate money to your cause. There’s no expectation that you’ll repay the donors or offer them anything in return.
- Debt crowdfunding gets you financing from backers that you promise to repay in the future. Typically, these crowdfunding campaigns outline the repayment timeline and offer interest, giving the backers a chance to earn a return on their investment.
- Reward crowdfunding lets backers give your business money and receive something in return. For example, you might offer the product you’re developing or digital content as an award for funds.
- Equity crowdfunding sells a share of the ownership in the business in exchange for funds. Because investors own part of your business, investors may have a say in how you run your business.
Crowdfunding can be a good way to drum up both funding and publicity for your business. You will, however, need to be able to generate enough attention for your campaign in order to make it work. You’ll also need to be able to fulfill the rewards, repayments or other conditions of the campaign in order to avoid both disappointing your backers and possibly violating the terms of the funding platform.
Crowdfunding might be a good option if:
- You’re able to attract enough attention to your campaign to gain backers.
- You’re sure you’ll be able to fulfill your campaign promises.
- You want to generate buzz for your business.
Bootstrapping
Bootstrapping is the act of starting a business using personal resources like savings or borrowing from friends and family.
The term comes from the idea of “pulling yourself up by the bootstraps.” This phrase means that business owners will put in time and effort to make their business successful.
Bootstrapping is also characterized by limiting business expenses and using personal equipment when necessary to get the job done. Many businesses start by bootstrapping in order to establish revenue and a customer base and meet the requirements for a traditional loan, get a prototype going to show to investors or otherwise establish a solid foundation for their business.
One option for bootstrapping is a rollover as business startup (ROBS), which allows you to draw funds from your 401(k) tax-free in order to start up your business.
Bootstrapping is beneficial because it keeps costs low and is an alternative to getting a business loan before you can establish revenue. On the other hand, you are putting your own funds at risk with bootstrapping, and stand to lose whatever you’ve invested if your business fails.
Bootstrapping might be a good alternative if:
- You want to start small with your business and grow over time.
- You’re okay with putting your own funds on the line.
- You have savings to invest.
When to choose a bank business loan alternative
There are a few good reasons to explore alternatives to bank loans, including:
- You don’t meet eligibility requirements for a bank loan. Alternative lending often has more lenient requirements than bank loans, and are more accessible for those with a lower credit score or revenue.
- You need fast funding. Alternative lenders can disburse funds within a matter of days instead of weeks.
- You can get better repayment terms or interest rates with an alternative. Alternative lenders can offer lower interest rates or more flexible repayment schedules.
- You get more flexibility in how you use the funding. Alternative lenders can offer funding to industries that banks may not lend to, such as cannabis growers or car dealership.
- You want to avoid debt. Some forms of alternative funding don’t involve loans at all, and can fund your business without without the need to pay the money back.
Bottom line
If you want to get a small business loan, looking beyond loans from a major institution to alternative business loans may pay off in the long run. While traditional loans from big banks have strict requirements, alternative lenders and funding sources introduce solutions for new businesses or those with subprime credit. These alternative lenders and loan options may speed up the approval process, helping you make quick purchasing decisions or take advantage of a time-sensitive opportunity. Be sure to think through all your options to make the best decision for your business.
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