Top 7 alternative funding options every small business should consider
Running a small business comes with enough challenges.
Funding shouldn’t be what stops your momentum.
If your local bank says “no” or you don’t fully match lending criteria, there’s a growing list of funding options made for business owners just like you.
Let’s take a closer look at some non-traditional funding routes, why they matter, and what you can do now. (Scroll down or stick around until the end for a small business evaluation checklist!)
1. Invoice financing and factoring
Use unpaid invoices as collateral to get upfront cash.
Look into companies like BlueVine and Fundbox. They offer invoice cash advances, also called “invoice financing,” so you can get a portion of the invoice value while you wait for your clients to pay. (If you’re a service provider or have B2B clients, this could be a great option for you.)
Best for: B2B companies with long payment cycles or slow-paying clients.
Why it works:
- Improves cash flow fast
- No need for extra collateral
What to watch out for:
- Fees can add up if your clients take too long
- Factoring may hurt customer relationships if the collector is too aggressive
Let’s say your client remits a payment in 60 days instead of the usual bi-weekly or monthly amount. This delay could cause your payroll or inventory restocks to be stalled. With invoice financing, you’ll have breathing room while you wait for your clients to pay.
2. Revenue-based financing (RBF)
Get upfront capital in exchange for a fixed percentage of your monthly revenue until you repay a set amount. (If you have consistent revenue, this may be your best option.)
Best for: SaaS companies and e-commerce brands with steady sales.
Why it works:
- Payments flex with revenue
- You keep full ownership
What to watch out for:
- Total cost is often higher than a regular bank loan
- If sales drop, repayment can become a strain
Unlike traditional small business loans (SBL) with fixed monthly payments, RBF adjusts with your business. This means you’ll have smaller payments during slow months and higher payments during your more profitable months.
*Note: If you’ve had predictable sales for at least a few years, you may qualify for an SBL. Since you have income coming in, they could approve you, which means you should have a lower total repayment cost compared to an RBF.
3. Community development financial institutions (CDFIs)
Collaborate with CDFIs (Community Development Financial Institutions). They’re nonprofit lenders that offer business loans to underserved areas or owners who traditional banks turned down.
(This is a fantastic option if you live in a low-income community or if you’re planning on opening a school, community center, or local health center in an underserved area.)
Best for: Startups in low-income or underserved areas
Why it works:
- Flexible loan programs
- More focus on community impact than profit
What to watch out for:
- The application process can be long
- Loan amounts might be smaller
CDFIs often provide assistance with your business plan, financial statements, and growth strategies as well. They’re essentially an economic partner and a lender, which can be super helpful if you’re brand new to business.
4. Peer-to-peer (P2P) lending
Use online P2P platforms to connect directly with individual investors who can lend you money. If you’re in a pinch and need funding soon, this may be your best option.
Best for: Businesses with decent credit that need quick funding.
Why it works:
- Fast approval
- Competitive interest rates
What to watch out for:
- Interest rates can vary widely
- Less oversight means more risk if the platform fails
Sites like Prosper (which has facilitated over 28 billion dollars in loans to date) offer business financing from real people, not banks. Investors fund your loan based on your business model, growth potential, and how strong your pitch is. It’s direct and often faster than traditional routes, so if your credit’s good, definitely consider it.
5. Merchant cash advances (MCAs)
Receive a lump sum upfront with an MCA and repay it with a daily or weekly deduction from your credit card sales.
If you have steady card sales, this could be a good option. (Fair warning: Fees can stack up fast, so make sure you’re clear on them.)
Best for: Retail, food service, or salons with steady card-based revenue.
Why it works:
- Lightning-fast funding
- Easier approval than bank loans
What to watch out for:
- Extremely high effective interest rates
- Daily payments can strain your cash flow
MCAs are helpful in emergencies. But use them short-term. They’re not designed for long-term growth and could lead to excessive debt.
6. Crowdfunding
Raise money online from a crowd of supporters. Some contribute to perks (like Kickstarter). Others receive partial ownership (like Wefunder). If you have a revolutionary idea and a bold campaign, but no capital, this could be the way to go.
Best for: Startups with unique ideas or strong branding.
Why it works:
- No loan = no monthly payments
- Builds buzz and community
What to watch out for:
- Heavy on marketing
- Not all campaigns reach funding goals
- Platform fees and terms vary
Crowdfunding platforms are effective when your product addresses a clear and pressing problem. However, you need a solid business plan, a compelling story, and marketing expertise. (If you don’t have the latter, make sure to get a strong team to lead your marketing. You’re going to need it.)
7. Microloans
Get a small loan under $50,000, also called a “microloan”.
Instead of lending the money directly, the SBA partners with local nonprofit lenders who are familiar with their communities. These groups manage the loans and provide guidance and support to help borrowers achieve success.
If you don’t need much to get started, and you’d like training or mentorship, this could be the way to go.
Best for: Very small businesses, new founders with modest capital needs, or non-profit childcare centers.
Why it works:
- Great for startups
- Often includes training or mentorship
What to watch out for:
- Funds are limited (most land around $13k)
- Applications can be time-consuming
Look into your local credit unions or SBA-affiliated programs. These often support underrepresented founders, so you may have a better chance of securing them.
Why this matters to your business
If you don’t understand your funding options, your business is vulnerable.
Traditional bank loans are tough to land, especially if you’re just starting out or don’t have solid assets to back you up. And when you’re under pressure, it’s easy to grab the first offer that sounds like a lifeline.
But every type of financing comes with trade-offs. The wrong one can quietly drain your cash, damage your reputation, or tie you to terms that don’t make sense for your growth. Some funding options come with legal strings, tax complications, or even partial ownership stakes. If you overlook those details, you could pay for it down the line, sometimes for years.
On the positive side, making the right choice can give you breathing room, flexibility, and the fuel to grow your business without relying on your own cash.
Weigh every option when you’re considering alternative business financing. We made a checklist for you at the end you can use for this. 🙂
What you should do now: 6 smart steps
You’ve got options, but don’t jump in without getting prepared first.
Here’s how to take control of your funding decision, step by step:
Step 1: Map out your cash flow
Start by projecting your income and expenses for the next 12 months. Where’s the dip? When will cash get tight? When will you have more flowing in?
➜ Highlight, circle, or draw arrows around any times of the year where you’re especially vulnerable AND times when you’ll have plenty. (You can do this on paper, in a spreadsheet, in Google Docs, or via an online finance management tool.)
Step 2: Rank your priorities and funding needs
What matters most right now? And what trade-offs are you willing to make?
List out your priorities and consider any additional needs your business may have that you haven’t yet purchased.
For example, say you’re opening a historical tours business and starting with a Channel Islands tour. Break down each financial stage of your business where you might need help, like this:
- Purchase our first boat and insurance.
- Hire travel guides with history expertise.
- Buy safety equipment and emergency aids (like inflatable boats).
- Build a simple travel website with easy online booking features.
- Market the tour with flyers, social ads, and local partnerships.
This is also a great time to consider any additional items your business needs that you haven’t purchased yet due to price.
For instance, if you have a tech-driven business that handles sensitive data, alternative funding could help cover important tools like vulnerability scanners. (These are critical for identifying any security gaps in your biz and protecting customer trust.) Audit your operations and goals to see what else you might need.
Step 3: Compare the true cost
Look past the surface.
APR, fees, repayment frequency — they all affect your finances. Even “easier” options, such as credit cards or business lines, can sneak up on you with compounding costs.
Always get the whole picture and map out a few scenarios so you can understand the implications of each of your options.
Be sure to also stress-test your repayment plan.
If revenue dropped 30% tomorrow, could you still make payments? If the answer is no, reconsider the offer or explore alternative ways to increase revenue for your business.
Step 4: Prep your documents now and create a solid online presence
Keep updated financials, an impressive business plan, and a pitch deck on hand. (Update these each month with fresh data and insights.) When you’re strapped for cash, you don’t want to scramble at the last minute to put these together.
You also need to prioritize the way your business looks online. If you don’t have a website or at least optimized social media profiles, it’s hard to envision the customer-facing side of your business.
Lenders want to get a sense of who you’re serving and why it matters, so provide them with something to consider.
For instance, show up consistently on LinkedIn, run campaigns to boost your Instagram followers, and share SEO-optimized blog posts on your site. Launching user-generated content campaigns is also a great way to build confidence in your business.
For new businesses, this kind of digital credibility can make a strong case for other funding. It shows that your brand is both relevant and scalable.
Step 5: Build local lender relationships and be careful with short-term lending
Community lenders, CDFIs, and credit unions want to help startups, but they prioritize relationships. So start talking to them now, before you need anything.
Get to know them, have honest conversations, and take the time to remember their names. (Just like you do when you network on LinkedIn or with other business partners.) You never know what other doors could open as a result of these conversations. Even beyond financing.
Also, remember to use short-term tools wisely if you choose to use them before opting for a larger lender.
Merchant cash advances, factoring, and fast loans can be helpful in a pinch — but they’re not long-term solutions. Set a clear deadline to exit these tools before they drain your resources.
Step 6: Match the funding to your model and vet every lender
Let your business structure guide your funding choice.
- Launching a product? Crowdfunding could build buzz and cash.
- Running a SaaS brand? Look into revenue-based financing.
- Waiting on big B2B invoices? Consider factoring.
Make sure to also vet every lender thoroughly. A good-looking website means nothing. Dig deeper. Check reviews, business ratings, complaints, lawsuits, and social proof.
If you get approved for funding, read every word of the agreement, and question anything that feels vague. Have a pro look it over for extra peace of mind.
Be sure to also use our funding evaluation checklist below when you’re ready to get funding.
Small business funding evaluation checklist
Use this checklist before accepting any alternative funding offer.
Business needs and alignment
- Have I mapped out cash flow forecasts for the next 6–12 months?
- Does this funding option align with my revenue model and business stage?
- Am I choosing this because it fits, or is it because it’s the only offer on the table?
- Do I need short-term cash relief, long-term growth capital, or bridge financing?
Answer: _______________________________________________________
Cost of capital
- Have I calculated the total repayment amount?
- Have I translated this into an effective APR or IRR to compare it fairly?
- Do the repayment terms (e.g., daily, weekly) match my cash flow rhythm?
- Are there hidden fees (origination, prepayment penalties, maintenance, late charges)?
- Do I understand how this will affect profitability over time?
Terms and traps
- Are the repayment terms locked in?
- Is there anything that puts my assets at risk?
- Is there a prepayment penalty that punishes early success?
- Have I read the entire contract (not just the summary page)?
- Have I checked for clauses that allow the lender to pull funds without notice?
- What happens if I miss a payment — default, collection, or legal action?
Answer: ______________________________________________________
Lender’s reputation and legitimacy
- Is the lender registered, licensed, and compliant in my state?
- Have I found unbiased reviews or complaints from other business owners?
- Has the lender been sued or fined by regulators?
- Does the lender clearly disclose terms up front?
- Can I speak to a real person who answers questions without dodging?
Decision logic
- Am I solving a business problem, or just a temporary panic?
- Have I considered lower-risk alternatives?
- Can I afford this funding even if revenue drops for two months?
- Have I had a CPA, CFO, or financial advisor review the offer with me?
- Am I ready to walk away if this deal doesn’t meet all of the criteria above?
Wrap up
It’s always a smart idea to have funding options for unpredictable times or when you have a big business idea but little capital.
With alternative funding options, you have more control.
But remember to choose wisely. There’s no perfect funding option, only what fits your business best. Make the choice that gives you confidence, not stress by using our checklist above.
And for more practical tips to secure the right funding and grow your business with confidence, visit business-money.com — your go-to resource for smart, no-nonsense business and money advice.