8 Alternative Lending Options for Small Business Capital

8 Alternative Lending Options for Small Business Capital

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Small business capital is undergoing major changes in the U.S. Having sufficient funds to pump into working capital for the funding of marketing, staff, creation of new products and more, is paramount to small business growth and success.

Seeking such small business capital remains a challenge for entrepreneurs, many of whom are acquiring funding from sources other than banks.

Many alternative lenders are breaking away from traditional forms of lending, offering a more comprehensive and hybrid approach to small business capital. It’s an approach combining resources such as working capital, cash advances and invoice financing.

These days, entities use various terms, and dunsing options like working capital and cash advances are merging. Many alternative funders are hybrids that use terminology interchangeably.

Alternative Sources of Small Business Capital

If you’re an entrepreneur looking for crucial small business capital to help secure success and growth, take a look at the alternative sources of funding below.

Merchant Advances

PayPal has been one of the leaders in this field, particularly in the world of online business. You can apply for a merchant cash advance in minutes with PayPal and get flexible terms that enable you to repay the loan as you get paid, meaning you don’t have to worry how the financing may negatively affect your cash flow.

Square Capital has been another innovator in the market of merchant advances. Applying is fast and simple, the company says.  Upon approval, the funds are deposited into your bank account as soon as the next business day. The lender payback process is also simple, with convenient automatic deductions made from your daily card sales, meaning you don’t even have to think about the repayments.


Invoice financing is one alternative lending option if you have cash tied up in unpaid invoices. Companies like Segway Financial offer an alternative to merchant advances. As Hanna Kassis an expert at Segway Financial explains, with merchant cash advances, cash flow history is required but your small business doesn’t need to supply any collateral.

Small business factoring, on the other hand, requires actual invoices and those receivables and invoices are used as collateral. Hence the reason this is sometimes called an invoice advance loan.

Kassis adds: “Companies that qualify for factoring are typically B2B under unfavourable terms. That delayed payment could be a result of the seller offering it to get business or the vendor offering it because they’re spending enough money they can dictate the terms of the deal.”

Online Loans

Online lending platforms like Biz2Credit specialize in providing loans to small businesses quickly — and at relatively low rates. Biz2Credit provides funding to small businesses in as little as 24 hours for rates as low as 6.5%.

A comprehensive range of loans are available for specific purposes, including equipment financing, real estate financing, franchise loans, small business loans, bad credit business loans, and more. Startup loans are also available to help get new businesses up and running.

Unsecured Business Loans

Another new kind of alternative lending is the unsecured business loan which depends on aspects of your business beyond credit score.

Instead, companies like SnapCap use factors such as sales performance to determine whether a business is eligible for financing. This simplified lending platform has a fast turnaround time of just 48 hours from applying for the loan until the money is received. SnapCap offers unsecured loans to small businesses of between $5,000 and $600,000.

Lines of Credit

You can apply for quick access to working capital through lines of credit too. For example, Kabbage offers lines of credit up to $250,000 through its lending platform. You can choose between 6 and 12-month term deals with Kabbage. What’s more, you can start using Kabbage funds immediately and go back to the lender when you need more capital to grow your business.

Unlike traditional lenders, Kabbage approves loans by looking at real-life data, not just the credit score. It’s worth mentioning that the approval process is quite transparent and takes only a few minutes.

On the flip side, however, you need to pay back your loans within six months.

To be eligible, you need to be in business for one year or more, and make over $50,000 a year in revenue. To date, Kabbage has funded over $1 billion to help small businesses grow.

Working Capital Loans

Other lenders offer working capital loans but have mechanisms in place that may make getting finding easier. Companies like Fundation offer small businesses a working capital loan of up to $500,000.

The online application process takes about 10 minutes, followed by an immediate initial credit analysis. The analysis ascertains whether or not you are a good fit for a working capital loan. Once your application is approved, it takes three business days for the funds to reach your account.

Fundation partners with banks and other institutions to provide its business loans. The biggest challenge with Fundation is its eligibility criteria. If your business has not been operational for at least two years and doesn’t generate at least $100,000 a year, your application will be automatically rejected.

Your financials will play a major role in determining whether or not your application is approved. In addition to other criteria mentioned above, you should have at least three employees and good personal credit.

Short and Long-Term Loans

For short and long-term loans, companies like OnDeck offer great flexibility. This company offers two flexible financing options for small businesses – lines of credit of up to $100,000 and term loans up to $500,000.

Rates are competitive, standing at 13.99 APR for lines of credit and 9.99% AIR for term loans. Applications for OnDeck funding is extremely quick, around ten minutes, and you can receive funding in just 24 hours.

On the flipside, however, OnDeck doesn’t offer unsecured loans. So, when a business takes a term loan from OnDeck, a general lien is placed on the business’ assets until the loan is paid off. The business owner also needs to give a personal guarantee for the loan.

To qualify, you must be in business for at least a year, have a 500+ credit score, and annual revenue of more than $100,000 in the past 12 months.


Companies like Accion offer small businesses microloans to purchase vital business equipment, inventory or for working capital. Accion lends to new and seasoned businesses and entrepreneurs, with each loan designed to meet their individual needs.

For businesses that need funds to grow, Accion offers loans in the range of $500-$100,000. The microloans can be used to purchase inventory, upgrade equipment or as operating capital.

It takes about 15 minutes to apply for the small business loan. You just need to provide basic information about your business to get started.

The biggest downside is that you need to provide collateral and equity to be eligible for the loan. Collateral could include real estate, if free and clear.

To qualify, you have to show your ability to repay the debt as well as proof of your income and revenue. You should also be in good standing with creditors and have a credit score of 500 or higher.

Image: Kabbage 4 Comments ▼

Shubhomita Bose Shubhomita Bose is a Staff Writer for Small Business Trends. She covers key studies and surveys about the small business market, along with general small business news. She draws on 8 years of experience in copywriting, marketing and communications, having worked extensively on creating content for small and medium sized enterprises.

4 Reactions
  1. Thanks for the list. The hardest part of putting up a business is capital so you will need all the options that you can get.

  2. In Australian small biz finance from the major banks is equally as difficult. However, there are a range of non bank options for business finance accepting almost every situstion if you know where to look. Thank you to all those non bank biz lenders who put their cash on the line for SMEs.

  3. An excellent alternative that sometimes is more flexible would be accounts receivable factoring. By using invoices to qualify for funding the small business does not end up with a loan that has to be paid off. Also by leveraging the credit of the customer a small business can access working capital to keep contracts going on time.

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