Small Business Financing Options That Bypass Traditional Banks

15th March 2022

Small Business Financing Options That Bypass Traditional Banks

Looking for funding? Find out how to finance your startup without a traditional bank.

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  • Venture capitalists can provide funding, networking and professional guidance to launch your business rapidly.
  • Generally, angel investors don't ask for any company shares or claim to be stakeholders of your business.
  • Businesses focused on science or research may receive grants from the government.
  • This article is for small business owners who need information on alternatives to traditional bank loans.

Starting your own company can be a daunting but rewarding process. While a great business plan is crucial for founders, financing is one of the most important elements a company needs to succeed.

However, financing a startup or small business can be a difficult, drawn-out process, especially for those with poor credit. While there is no minimum credit score you must have to get a business loan, traditional lenders have a range they usually consider acceptable.

If you have a low credit score and no collateral to offer, consider an alternative loan. In this article, we break down 11 small business funding options, examine the benefits of alternative lending and provide tips on how to finance your business.

Why is it difficult for small businesses to get loans from banks?

Capital is difficult for small businesses to access for several reasons. It's not that banks are against lending to Madisonville payday loans no credit check small businesses – they want to – but traditional financial institutions have an outdated, labor-intensive lending process and regulations that are unfavorable to local shops and small organizations.

The difficulty of accessing capital is exacerbated because many small businesses applying for loans are new, and banks typically want to see at least a five-year profile of a healthy business (for instance, five years of tax data) before extending an offer.

What is alternative financing?

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Alternative financing is any method through which business owners can acquire capital without the assistance of traditional banks. Generally, if a funding option is based entirely online, it is an alternative financing method. By this definition, options such as crowdfunding, online loan providers and cryptocurrency qualify as alternative financing.

Why might small businesses seek alternative financing?

There are several reasons why small business owners might turn to business loan alternatives. Here are three of the most common.

  • Lower credit requirements: Traditional banks are almost certain to decline loans to borrowers with credit scores below a certain threshold that, though different for each loan provider, is often between 600 and 650. [Read related article:How to Build Business Credit]
  • Easier qualification: Not all small business owners meet the additional requirements to apply and be approved for traditional loans. In these cases, business loan alternatives are helpful.
  • Faster approval: Traditional bank loans can take weeks to be approved, whereas some business loan alternatives give you access to funding in as little as one week.

Business financing options without a traditional bank

If your small business needs capital but doesn't qualify for a traditional bank loan, certain alternative financing methods and lenders may meet your needs. Here are some of the top financing options for startups and small businesses.

1munity development finance institutions

There are thousands of nonprofit community development finance institutions (CDFIs) across the country, all providing capital to small business and microbusiness owners on reasonable terms, according to Jennifer Sporzynski, senior vice president for business and workforce development at Coastal Enterprises Inc. (CEI).

"A wide variety of applications for loans come across our desk every week, many of them from ambitious startups," Sporzynski said. "As a mission-oriented non-bank lender, we know from experience that many viable small businesses struggle to access the capital they need to get started, thrive and grow."