Business Financing Options

Get to know your business financing options

Gerri Detweiler • May 9, 2022

Business owners have many choices in terms of financing options, and qualification requirements can be different depending on the type of financing you choose. Costs vary widely as well.

What is Business Financing?

Business financing includes many types of funding used for business purposes. Some types of financing are short-term, meaning they must be repaid in weeks or months. Long-term financing is often used to finance expensive assets such as real estate or equipment. And of course there are many in between.

This chart provides a quick overview of the most popular types of financing for small business owners. Keep reading to fully understand how each one works and how to qualify.

Financing Types Loan Amounts Interest Rates Repayment Terms Turnaround Time Credit Criteria SBA Loans $2,000 -$5 million 3.75% – 13% 5 – 25 years 30 days – 6 months May require a minimum business credit score (FICO SBSS) Traditional Bank Loans $250,000+ 5% – 10% 1 – 20 years 2 – 4 months Usually requires strong personal and/or business credit scores Online Loans $25,000 – $500,000 7% – 30% 1 – 5 years 2 – 7 days

Varies by type of financing Micro-Loans $500 – $50,000 8% – 15% 1 -5 years 1 – 3+ months More flexible but still a main factor Merchant Cash Advance $200 – $250,000 15% – 150% 3 – 12 months 1 – 7 days Not required Cash Flow Loans $200 – $100,000 25% – 90% 6 – 12 months Minutes – 3 days Less important, but still a factor Business Credit Cards $250 – $25,000 13% 25% 30 days 1 – 3 weeks Personal credit scores will be a factor Vendor Financing $1,000 -$100,000 0 – 36% 10 – 120 days Hours to weeks May require good business credit

Find the right financing for you Don’t waste hours of work finding and applying for loans you have no chance of getting — get matched based on your business & credit profile today. See my matches

Types of financing for businesses

Before you start researching your small business financing options, it’s wise to know what you want. Are you looking for long-term financing? Do you need cash within days? Do you need the money to refinance debt or buy real estate? Remember, many types of financing not only have a range of turnaround times from application to payout, but they may also have restrictions on how the money is spent. Get familiar with each of these most common business funding choices before you start applying.

Invoice financing Get immediate cash flow to pay invoices or grow your business.

Online Loans Get faster and more flexible business loans online.

Equipment Financing Lease or purchase equipment for your business.

SBA loans Loans guaranteed by the U.S. Small Business Administration.

Merchant Cash Advance Receive a lump sum upfront with this alternative to bank loans.

Business line of credit Access a line of credit that you can use, pay off, and reuse.

Commercial Real Estate Loans Purchase real estate, renovate your property, or refinance real estate debt.

Microloans Smaller loans that you may qualify for if you can’t secure other funding.

Trucking Business Loans Finance the purchase of a commercial truck or fleet of trucks.

Traditional Bank Loan An affordable way to maintain cash flow or finance business expansion.

Traditional Bank Loans

When you think of getting money for working capital or refinancing debt, do the traditional bank loans come to mind first? It’s not surprising since these loans are among the most coveted in the industry due to their low rates and favorable loan terms. You might consider inquiring with your existing bank, or a local bank, to see what they offer. Just keep in mind that banks often have high qualification standards.

Whether you consider a bricks-and-mortar bank loan or choose one of the newer online banks for financing your business, you’ll need to know how long you need to pay the loan back. There are three types of term loans popular with small businesses, from short-term loans (which can come with a higher interest rate but get you funded fast), to medium and even long-term loans. Depending on how much you want to borrow, and what your monthly payment amount needs to be, the bank should be able to help you find the term loan that is priced right for your budget.

SBA Loans

The U.S. Small Business Administration (or SBA) has been helping small business borrowers get financing for many years. Except for Disaster Loans (including the Economic Injury Disaster Loans or EIDL which you apply for at SBA.gov) the SBA doesn’t make loans. Instead it guarantees loans made by participating lenders. There are a number of SBA loan programs, but the most popular include:

SBA 7(a) Loans

These are the most common of the SBA loans, offering qualified U.S. businesses low-interest loans for working capital through a variety of partner lending institutions. The maximum loan amount is $5 million and these loans may be used for a variety of purposes, including working capital, real estate and even refinancing debt.

The beauty of SBA 7(a) loans is that they are designed to help small businesses who have not been successful getting funding elsewhere a way to secure loans at competitive rates and with favorable terms. You’ll still need good to excellent credit to qualify. If you’re looking for a large source of cash for business purchase or expansion, however, this may be an appealing option.

Note that Paycheck Protection Program loans (PPP loans) fell under the SBA 7(a) program. Those forgivable loans are no longer available.

SBA 504 Loans

Looking to finance real estate or major equipment for your business? You may want to look into loans provided through the 504 SBA Loan program. The loans are made available for fixed assets, such as machinery, as well as property. These loans involve a loan from a private lender, a Community Development Financial Institution (CDFI) and a down payment from the borrower. Low rates and stable repayment terms are just a few of the reasons growing companies turn to this program when it comes time to make large expansion plans.

SBA Express Loans

In a “speedy” version of the 7(a) loan program, the SBA has tapped preferred financial institutions to take on some of the risks in processing loans for quicker turnaround time. Instead of waiting weeks or even months to hear if you’ve been approved, the SBA Express Loan program can deliver a verdict in just a couple of days. (Actual funding can take longer than that, however; weeks or more is not uncommon so don’t expect to get funding in a matter of days.) You may also pay slightly higher interest rates for these expedited loans.

SBA Microloans

Another category of SBA funding is the SBA Microloan program. As the name suggests, the loan amount is smaller (up to $50,000). They may be more flexible, though. Typically made by nonprofit Community Development Financial Institutions, they may be available to startups or to business owners who have overcome bad credit. These loans carry competitive rates and come with technical assistance; help designed to make the business successful.

Business Line of Credit

Do you enjoy the flexibility of using a credit card as much (or as little) as you want, but would rather have the benefit of cash? Then a business line of credit may be for you. Like a credit card, the bank will give you a set limit that you can borrow against, then pay it back and borrow again. The perks of a revolving line of credit like this are that you can borrow just what you need. Interest rates vary. The better your personal credit score or business credit score, the more competitive the rate you’ll be able to secure. With rates ranging from 5% to 36%, it’s in your best interest to stay on top of your credit so you can qualify for those lower APRs.

Term Loans

If you know exactly how much your business needs to complete a specific project or goal, a term loan can be a great option. A term loan offers a lump sum, fixed amount of financing with a specific repayment period. For online loans, the repayment period is typically 6-24 months. Bank or SBA term loans typically offer a repayment period of anywhere from 2-25 years, depending on the amount borrowed and the use of funds. These loans may carry fixed or variable interest rates. Generally the lowest rates go to the most qualified borrowers. In addition, bank/SBA loans tend to carry the lowest rates.

Business Credit Cards

Among the basic financial tools that all business owners should consider is one or two business credit cards. If you pay in full each month, consider rewards cards that earn you cash back or other perks. If you’ll carry a balance, a 0% APR card may be a good choice. In addition to freeing up cash in an emergency, today’s business cards can provide a wide range of business cash management tools. See what your employees are buying, categorize spending for better budgeting, and use the reporting perks to make tax-time a breeze! With rewards ranging from airline tickets to statement credits to cold, hard cash, there’s likely to be a couple of cards that can help you squeeze a bit more out of your spending. Just be sure you keep your cards paid on-time and shop around to get the best annual fees and bonus offers for new card accounts.

Equipment Financing

If the fryers in your restaurant are on the fritz or you need to get that manufacturing line up and running again right away, you might consider looking into equipment financing. Equipment financing may include loans secured by the equipment, or equipment leasing, which lets you essentially rent equipment to purchase (or return) later. In the case of equipment financing, you borrow money from the lender for the explicit purpose of purchasing equipment, and the equipment becomes the collateral needed to secure the loan. Like financing any tangible items (such as a car or house), you keep making payments until the financing is repaid. Rates range from a low 8% to over 30%. Not surprisingly, the larger the loan you qualify for, the longer it will take to pay it back.

Invoice Financing

If you sell products or a service to other businesses (B2B), you may allow them to pay at a future date. The invoices those clients owe can be turned into cash through a lender. Invoice financing is a loan secured by your accounts receivables. Another version is invoice factoring, where the lender advances money from invoices due by other businesses and then may collect on behalf of the small business. Invoice financing and invoice factoring can be one of the more expensive small business loan types out there, so be sure to read your contract carefully.

Commercial Real Estate Loans

If you’ve ever bought a home, you already know the basics of commercial real estate loans. Like any property financing, they can include a myriad of costs, from the price of the building or property itself to closing costs, fees, surveys, inspections, taxes, and title insurance. Commercial real estate loans can be enormous (often referred to as “jumbo” loans) but due to collateral, interest rates can be attractive.

Auto Loans

If you own a business with even one vehicle, you will probably encounter a need for commercial auto loans. Once again, if you’ve ever bought a car, qualifying for one of these loans will be familiar. The difference, of course, is that you might want to apply with a lender that specializes in business financing and is accustomed to the needs of a growing small business. Banks or credit unions may be one option, but don’t forget financing through the dealership or manufacturer directly. There are fleet financing companies that only offer business vehicle loans and are up-to-date on all of the programs available.

Vendor Credit

Vendor credit can be useful for improving cash flow. In a vendor credit (also called “supplier credit” arrangement), you get goods from your vendors or suppliers without paying up front. You’ll then get a set time period to pay it off. Net-30 terms, for example, means you have 30 days from the invoice date to pay the bill. This type of financing is definitely considered a category of short-term financing, as you are expected to pay within a few weeks to a few months. Another potential benefit: some vendors don’t check personal credit so you don’t need good credit to qualify. And some vendors report payments to business credit agencies, helping you build business credit. When deciding which vendor to establish a credit relationship with, this may be an important factor.

Online Loans

How do online loans differ from traditional loans? The main difference is that the bulk of the loan application process is completed online—usually very quickly. A typical online lender will not require you to visit the lender in person to verify or complete paperwork.

Online loans vary in scope, price, and purpose, but it is assumed that they are more efficient and can produce a quicker turnaround from application to funding. Many can also provide you with a pre-approval— to let you know if you’ll have good chances of qualifying, your general loan amount, and the costs— before you ever apply. Because they are often more flexible, online loans will typically be more expensive than bank loans. If you need cash quickly, though, this is an important option to consider.

Microloans

Did you know that the SBA isn’t the only option for obtaining microloans? Some online lenders as well as nonprofit Community Development Financial Institutions (CDFIs) may offer these smaller loans. They may be available to startups, or to entrepreneurs with less than perfect credit. To find a microloan, it may help to connect with your local SBA resource partner such as your Small Business Development Center or SCORE.

Merchant Cash Advance

A fast, but expensive, option for those with a wide range of credit, the merchant cash advance allows your business to get an advance against expected future sales. The lender will typically look at your average credit card sales (or other deposits) to determine how much you can get, and funds will arrive quickly—usually in a day or two. The application process is much easier than just about any other type of funding. The drawback, of course, is the cost. With “factor rates” determining the cost of financing – instead of interest rates—understanding the cost can be confusing. Expect to pay 30% to 80% or more, so make sure you can still make a profit even after paying back the financing.

Cash Flow Loans

When a bank needs collateral to secure a loan, but you don’t want to risk assets, you might want to consider cash flow loans. These use the predicted amount of cash you’re expected to receive in sales or liquidated assets as the means for establishing risk. The lender can determine that you’re good for a certain amount based on cash flow alone. Interest rates and costs for these vary, but they are usually limited to those companies making revenues in the millions of dollars. They aren’t an option for startups.

Crowdfunding

If you have a network of friends and family, or eager fans or customers, crowdfunding may be an option for you. Using online platforms, you raise funds from individuals who want to back your small business, either to earn a reward or by becoming a lender or investor in your business. It is available to startups. While crowdfunding has been hugely successful for some small businesses, it’s a dense space with many people competing on the most popular crowdfunding platforms. You’ll need an excellent marketing campaign. Keep in mind that only a small percentage of projects hit their funding goal.

Costs vary, depending on the type of crowdfunding (rewards or equity, for example) and the platform you use.

Watch our webinar: How to Leverage Crowdfunding For More Financing.

Grants

The most sought-after source of business financing has to be small business grants. Grants are “free” money in that they don’t have to be paid back. Because of this, however, everybody wants them, and competition for even the most generous grant programs is often fierce.

Government grants often come to mind first, but it’s important to understand that the federal government does not give away money to start a new business. However the federal government does make numerous grants to small businesses that help the government achieve certain goals. In addition, many private companies, community organizations, and nonprofit foundations offer grants that range from a few hundred to tens of thousands of dollars. The requirements vary by group, so do your research to see if you qualify. Grants can sometimes be confused with sweepstakes or contests. If grants require you to have people vote for the winner or are randomly selected, they may not be actual grants. Watch out for entry fees, or fees to claim a grant. There are many scams associated with grants.

The Targeted Advance (Grant) that offered small businesses impacted by COVID-19 up to $15,000 in conjunction with an application for an Economic Injury Disaster Loan (EIDL). They are no longer available.

Family and Friends

While mixing relationships with business can get messy, many of our loved ones are just the people to support our endeavors with a bit of financial backing. If your family and friends believe in your project, it’s perfectly OK to ask them to chip in, but do so with some guidelines. First, make it clear whether you are asking for a loan or a gift. Loans should come with a basic contract that clearly explains the repayment terms (amount to be paid, the timeline for payment, and any interest or fees.)

Family and friends can also be a source of technical or training support if they have small business experience in your field. But be careful about money that comes with strings attached. As with anything that involves loved ones, try not to let emotions get in the way. Even as your business grows, try to keep matters of money strictly professional.

Angel Investors

If you’ve been hanging around the startup crowd for any length of time, you’ve likely heard the term “angels”. Angel investors are people who have the means to invest in a business opportunity that interests them. They are generally wealthy and will research opportunities in depth before jumping in. They might even spot the potential to join a business before it ever gets off the ground.

What’s in it for them? Equity. They want a piece of the pie, usually in the form of stock in the company. They may also want to give input on the business, offering ideas and expecting them to be implemented. For the savvy startup with few other options, angel investors present a huge opportunity for quick growth and shared expertise, but the cost is losing some equity and perhaps autonomy in how you run your company.

Venture Capital

For even more accelerated growth, you might seek venture capital. With the same benefits as an angel investor (including equity), these firms can take your business from idea to market in exchange for shared ownership. These firms invest in phases, or “rounds,” putting hundreds of thousands, or even millions, into a company they believe has the potential to make them a lot of money. Each round has a designated letter; the first round is called “Series A,” the second “Series B,” and so on. Most of the companies attracting venture capitalists are in tech, finance, or an industry that’s poised for tremendous and immediate growth. If you own a business that could potentially “disrupt” the market, you might be a good investment for one of these firms seeking equity in the brightest innovators.

How to qualify for a small business loan

Now that you understand a bit about what each financing type has to offer, what they might cost, and what will be required of you, you can go into the application process better prepared. This will help increase your chances of being approved for a small business loan.

The lender may ask for a number of items, but the three that often matter most include:

Credit scores. Both your personal credit score and your business credit report or score may be evaluated by lenders, depending on the type of financing you choose. (Banks and SBA loans generally require personal credit checks.) If you’re a newer business, however, you may not have much for a business credit history. That’s why it’s essential, even if you’re not in the market for a loan yet, to start to build business credit. How can you do this? Start by asking your vendors and service providers to report your on-time payments to the business credit bureaus. Then, continue to use credit to keep your score climbing responsibly. If you can get access to smaller credit products, such as business credit cards, to help you establish you’re a good credit risk, that helps too. Keep your balances as low as possible. Time in business. Banks like to see a minimum of two years in operation business as a way to establish that you know what your business is likely to continue. What if your business is new? There may be a way around it, using your personal assets as collateral or showing sales projections, outstanding invoices, or plans for growth. Remember, lenders aren’t keen on taking on risky projects, so the more history you can demonstrate, the more likely they are to approve you and give you the best rates for your chosen funding type. (Startups aren’t completely out of the game, but without two years of demonstrated success, it is admittedly more difficult to find funds.) Cash flow. Along with time in business, lenders want to know the business earns enough income to repay the debt. They will typically request business bank statements to verify monthly or annual revenues, and they will scrutinize those carefully. Some lenders may also require financial statements and/or business tax returns.

The more prepared you are before you apply, the better chance you’ll have getting approved. Your lender will need to see more information about your business than just what we stated above. Additional paperwork needed may include:

Personal tax returns

Business tax returns

Last 3-6 months of business bank statements

Business plan

Financial projections

Debts outstanding

Articles of incorporation, relevant licenses, and application certifications

Having these documents before you start your financing search will make the process smoother. Traditional lenders in a bricks-and-mortar setting and those working with the SBA are likely to ask for almost all of these things, as their loan requirements are stricter and the loans much bigger. The application process may be simpler with online lenders who may check credit and/or require you to link your business bank account to verify revenues.

Small business owners can apply for financing through several different sources:

Bank or credit union: You can apply through banks or credit unions that offer small business loans. While financing through one of these financial institutions will likely carry attractive terms, keep in mind that the standards are typically higher than other lenders and the approval process can take weeks.

Online lender: If you want to find financing 24/7, or you don’t meet the high standards of traditional lenders, online lenders may offer what you need. Make sure you understand the qualifications and terms of the financing before you apply so you don’t waste time applying for financing you can’t get — or won’t want.

Business loan broker: Similar to a mortgage broker, a business loan broker will work with various lenders to try to find you financing. Make sure you understand how the broker will be compensated, and ascertain whether the broker’s goal is to help you find the best financing or just to earn the highest commission. You don’t want to be steered into higher cost financing if you qualify for better terms elsewhere.

Business loan marketplace: An online marketplace will help you shop among various funding options by using your data to match you to lenders that work with borrowers with your qualifications. This can be an efficient way to shop for financing.

Nav’s marketplace can match you to financing options based on your qualifications.

Determining how much business financing you need

A lender may also ask for a detailed list of why you need the funding and how it will be used. A lender may also ask for an explanation of why you need the funding and how it will be used. If this information is requested. Are you seeking funds for expansion? Are you refinancing a loan? Are you purchasing assets in anticipation of a busy season?

While it’s tempting to seek as much money as you can get your hands on, you only want to ask for as much as you need. Create a detailed list of the items you’ll purchase and the estimated cost. Will you be hiring employees? Document the projected cost to hire and how much the employee will be paid. Are you purchasing equipment? Research what equipment and an average cost to acquire that equipment. Figuring out how much you need—and how long of a repayment term you need—will be easier after you’ve updated your financial projections to estimate how much you need and when you’ll be able to pay it back.

How to understand the cost of small business financing

Unlike consumer loans where the cost of the loan is typically described as an Annual Percentage Rate (APR), small business financing typically does not require an APR to be disclosed. In addition, you may be unfamiliar with some of the terminology used, such as “factor rate.” That means it can be difficult to compare the cost of various options.

Consider using a free business loan calculator to translate the financing you’re being offered to an APR. This will help you understand how much the financing will cost.

In addition, be sure you understand:

Repayment schedule: Will payments be required on a daily, weekly or monthly basis?

Fees: What kinds of fees will be required upfront, on an annual basis, or when you access additional funds? What fees are charged if you pay late?

Credit reporting: How will this loan affect your personal credit? Will it help you build business credit? In addition you will want to know if the lender will file a UCC filing. Not sure? Ask the lender.

Business financing basics: Debt vs. Equity

Broadly speaking, funding your small business falls into two categories: debt and equity. Financing through debt comes in the form of a business loan. Loans may be secured by assets, which means a lender can take assets if the loan isn’t paid back, or unsecured, which means there is no specific collateral pledged for the loan.

Equity funding is where a business offers ownership of the company, typically in the form of shares, in exchange for money.

FAQs

What is the most common form of financing for a small business?

According to the Federal Reserve’s Small Business Credit survey (2021) the most common types of small business financing are loans or lines of credit, followed by credit cards.

Those are followed in popularity by merchant cash advances, trade credit, leasing, equity investment, factoring and a category labeled “other.”

How do I qualify for a small business loan?

Every lender’s eligibility criteria is different but it will almost certainly include revenues or cash flow, time in business, industry and/or credit scores. If one of these factors is weak, others should be strong. And certain types of financing require specific qualifications. For example, it is very hard to get a bank or SBA loan with bad credit. But if your business revenues are strong, you may be able to get a business cash advance even with poor credit scores.

Can you get government funding for your business?

The federal government offers funding assistance to small businesses in two forms:

Government-backed loans, which are in the form of SBA loans as discussed previously, and Government grants, which are highly competitive grants available through specific agencies to fulfill specific purposes.

The federal government does not offer grants to start a small business, however.

Can you fund your small business with no money?

Many small business owners “bootstrap” businesses. They start by selling a product or service, and funding growth through sales. However, most businesses will eventually need financing in some form to grow.

What is the best way to finance a business?

There is no single option that is best for all business owners. Bank loans tend to carry the lowest interest rates, but they can be hard to qualify for. Microloans often carry attractive terms for businesses that have trouble getting financing, but loan amounts are smaller.

Nav can help your business get financing by connecting you to financing options based on your qualifications. Nav’s marketplace will sort and match over 100 financing options for your business so you can apply with confidence. It’s simple, and you can sign up for free without impacting your credit score.

How to Decide What Type of Business Loan to Apply For

Other forms of finance

Business loans, credit cards and overdrafts are some of the most common forms of debt finance used by UK businesses.

What is a business loan?

A business loan is when a lender provides money to a borrower.

The borrower must then pay that amount back, with interest, over an agreed period.

What is a credit card?

A credit card allows businesses to make purchases and payments using a line of pre-agreed credit.

What is an overdraft?

An overdraft is a line of credit that allows you to withdraw more than the funds you have available.

Interest is charged on the overdrawn balance, which you can repay as and when your cashflow allows.

An overdraft essentially increases the money available to you.

Who are business loans, credit cards and overdrafts suited to?

Business loans, credit cards and overdrafts are typically used for short-term access to funds and can help businesses manage cashflow.

Generally, applications are fast and eligibility criteria clear, so if your business is looking for funds quickly, these options may be worth exploring.

Who is eligible?

Each lender will have their own eligibility criteria. Typically, however, they like businesses:

with assets

with a trading history

with a proven track record

who can demonstrate their ability to repay the loan

Some lenders, such as Community Development Finance Institutions (CDFIs), will consider business loan applications from businesses with limited assets, trading histories or track records.

Where can I get a business loan, credit card or overdraft?

There are different types of business loan providers in the UK. They include:

For overdrafts and credit cards, you’ll need an existing business bank account with the lender.

Learn more about business loans, credit cards and overdrafts and whether they’re suitable for your business

Small Business Financing to Bypass Traditional Banks

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 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?

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 ]

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. 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.

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.

1. Community 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.”

Editor’s note: Need a loan for your business? Fill out the below questionnaire to have our vendor partners contact you with free information.

Lenders like CEI differ from banks in a few ways. First, many lenders look for a certain credit score, and that rules out a lot of startups. If banks see “poor credit,” that business will almost always end up in the “no” pile. CDFI lenders look at credit scores, too, but in a different way.

“We look for borrowers who have been fiscally responsible, but we understand that unfortunate things happen to good people and businesses,” Sporzynski said. “We seek to understand what happened and assess its relevance.” [See more information on choosing the right small business loan for you.]

For instance, personal or family medical issues and job losses can all negatively impact a borrower’s accounting, but those can all be explained. Also, CDFI lenders do not need nearly as much collateral as a traditional bank would. Other things can compensate for a lack of assets to be used as collateral.

2. Venture capitalists

Venture capitalists (VCs) are an outside group that takes part ownership of the company in exchange for capital. The percentages of ownership to capital are negotiable and usually based on a company’s valuation.

“This is a good choice for startups who don’t have physical collateral to serve as a lien to loan against for a bank,” said Sandra Serkes, CEO of Valora Technologies. “But it is only a fit when there is a demonstrated high growth potential and a competitive edge of some kind, like a patent or captive customer.”

The benefits of a VC are not all financial. The relationship you establish with a VC can provide an abundance of knowledge, industry connections and a clear direction for your business.

“A lot of entrepreneurs lack the skills needed to grow a business, and even though they can make money through sales, understanding how to grow a company will always be a lost cause in the beginning,” said Chris Holder, author of Tips to Success and CEO and founder of the $100 Million Run Group. “The guidance from an experienced investor group is the best thing, as the mentorship is key for everyone.”

Did you know? The benefits of a VC are not all financial. The relationship you establish with a VC can provide an abundance of knowledge, industry connections and a clear direction for your business.

3. Partner financing

With strategic partner financing, another player in your industry funds the growth in exchange for special access to your product, staff, distribution rights, ultimate sale or some combination of those items. Serkes said this option is usually overlooked.

“Strategic funding acts like venture capital in that it is usually an equity sale – not a loan – though sometimes it can be royalty-based, where the partner gets a piece of every product sale,” she added.

Partner financing is a good alternative because the company you partner with is usually going to be a large business and may even be in a similar industry, or an industry with an interest in your business.

“The larger company typically has relevant customers, salespeople and marketing programming that you can tap right into, assuming your product or service is a compatible fit with what they already offer, which would surely be the case or there would be no incentive for them to invest in you,” Serkes said.

4. Angel investors

Many think that angel investors and venture capitalists are the same, but there is one glaring difference. While a VC is a company (usually large and established) that invests in your business by trading equity for capital, an angel investor is an individual who is more likely to invest in a startup or early-stage business that may not have the demonstrable growth a VC would want.

Finding an angel investor can also be good in a similar way to gaining funding from a VC, albeit on a more personal level.

“Not only will they provide the funds, [but] they will usually guide you and assist you along the way,” said Wilbert Wynnberg, an entrepreneur and speaker based in Singapore. “Remember, there is no point in borrowing money just to lose it later. These experienced businesspeople can save you tons of money in the long run.”

5. Invoice financing or factoring

With invoice financing, also known as factoring, a service provider fronts you the money on your outstanding accounts receivable, which you repay once customers settle their bills. This way, your business has the cash flow it needs to keep running while you wait for customers to pay their outstanding invoices.

Eyal Shinar, CEO of small business cash flow management company Fundbox, said these advances allow companies to close the pay gap between billed work and payments to suppliers and contractors.

“By closing the pay gap, companies can accept new projects more quickly,” Shinar said. “Our goal is to help business owners grow their businesses and hire new workers by ensuring steady cash flow.”

6. Crowdfunding

Crowdfunding on platforms such as Kickstarter and Indiegogo can give a financial boost to small businesses. These platforms allow businesses to pool small investments from several investors instead of seeking out a single investment source.

“As an entrepreneur, you don’t want to spend your investment options and increase the risk of investing in your business at such an early age,” said Igor Mitic, co-founder of Fortunly. “By using crowdfunding, you can raise the necessary seed funds to get your startup through the development phase and ready to be pitched to investors.”

Tip: Read the fine print of equity crowdfunding platforms before choosing one to use. Some platforms charge payment-processing fees or require you to reach your full financial goal in order to keep any of the money you raised.

7. Grants

Businesses focused on science or research may receive grants from the government. The U.S. Small Business Administration (SBA) offers grants through the Small Business Innovation Research and Small Business Technology Transfer programs. Recipients of these grants must meet federal research and development goals and have a high potential for commercialization. [Read related article: How to Secure a Business Grant]

8. Peer-to-peer or marketplace lending

Peer-to-peer (P2P) lending is an option for raising capital that introduces borrowers to lenders through various websites. Lending Club and Prosper are two of the most notable P2P lending platforms in the U.S.

“In its simplest form, a borrower creates an account on a peer-to-peer website that keeps records, transfers funds and connects borrowers to lenders,” said Kevin Heaton, CEO and founder of i3. “It’s for money. A key difference is in borrower risk assessment.”

According to the SBA, P2P lending can be a solid financing alternative for small businesses, especially given the post-recession credit market. One drawback of this solution is that P2P lending is available to investors in certain states only.

This form of lending, made possible by the internet, is a hybrid of crowdfunding and marketplace lending. When platform lending first hit the market, it allowed people with little working capital to give loans to other people – peers. Years later, major corporations and banks began crowding out true P2P lenders with their increased activity. In countries with better-developed financial industries, the term “marketplace lending” is more commonly used.

9. Convertible debt

Convertible debt is when a business borrows money from an investor or investor group and the collective agreement is to convert the debt to equity in the future.

“Convertible debt can be a great way to finance both a startup and a small business, but you have to be comfortable with ceding some control of the business to an investor,” said Brian Cairns, CEO of ProStrategix Consulting. “These investors are guaranteed some set rate of return per year until a set date or an action occurs that triggers an option to convert.”

Cairns believes another benefit of convertible debt is that it doesn’t place a strain on cash flow while interest payments are accrued during the term of the bond. A drawback of this type of financing is that you relinquish some ownership or control of your business.

10. Merchant cash advances

A merchant cash advance is the opposite of a small business loan in terms of affordability and structure. While this is a quick way to obtain capital, cash advances should be a last resort because of their high expense. Many of the best credit card processing services offer this option, so check with your provider to see if this could be a form of capital to explore

“A merchant cash advance is where a financial provider extends a lump-sum amount of financing and then buys the rights to a portion of your credit and debit card sales,” said Priyanka Prakash, lending and credit expert at Fundera. “Every time the merchant processes a credit or debit card sale, the provider takes a small cut of the sale until the advance is paid back.”

Prakash says that while this appears to be convenient, cash advances can be very expensive and troublesome to your company’s cash flow. If you can’t qualify for a small business loan or any of the options above, only then should you consider this option.

11. Microloans

Microloans (or microfinancing) are small loans given to entrepreneurs who have little to no collateral. Microloans sometimes have restrictions on how you can spend the money, but they typically cover operational costs and working capital for equipment, furniture and supplies. One example of a small business microlender is Kabbage, which offers microloans of $2,000 to $250,00. Another example are SBA microloans administered by nonprofit organizations.

The benefits of alternative lending

Startups can enjoy a few key benefits in securing funding from a nontraditional source, according to Serkes. She believes that with alternative loans, a business owner gets a strong, invested partner who can introduce them to new clients, analysts, media and other contacts.

These are some other benefits of working with a nontraditional lender.

Market credibility: The startup gets to “borrow” some of the goodwill that the strategic partner has built up, and working with an established investor lends weight to the brand.

The startup gets to “borrow” some of the goodwill that the strategic partner has built up, and working with an established investor lends weight to the brand. Infrastructure help: The larger partner likely has teams for marketing, IT, finance and HR – all of which are things a startup could “borrow” or utilize at a favorable rate.

The larger partner likely has teams for marketing, IT, finance and HR – all of which are things a startup could “borrow” or utilize at a favorable rate. Overall business guidance: It’s likely the strategic partner will join your board as part of the investment. Remember that they have a wealth of experience in business, so their advice and viewpoint will be invaluable.

It’s likely the strategic partner will join your board as part of the investment. Remember that they have a wealth of experience in business, so their advice and viewpoint will be invaluable. Relatively hands-off partnership: A strategic partner still has their own business to run, so they are unlikely to be very involved in the day-to-day operations of the startup. Occasional updates on your business, such as monthly or quarterly, are usually sufficient check-ins for them.

All businesses need working capital to thrive. Without the appropriate business financing options, startup companies are likely to fail. Avoiding the traditional bank loan route might seem like an impossible feat, but there are a plethora of small business financing options readily available for entrepreneurs. Gathering the right market data research and implementing the best financing option for your company increases the chances of your business surviving for the long haul.

How can small businesses prepare to apply for alternative lending options?

Applying for financing entails much more than just filling out an application. To increase your chances of getting financing, small business owners should do their homework and have a strategy.

Here are five tips to help you prepare your business for financing success:

Know how much you need to borrow upfront. When you apply for business loan alternatives, you’ll likely find that many different loan amounts are available. Don’t commit to borrowing more than you need; there may be penalties for early repayment or for not using your whole loan. Write a business plan with financial projections. While not all alternative financing providers will demand to see your business plan, many funding sources have this stipulation, so you should prepare your plan now. [Read related article: The Do’s and Don’ts of Writing a Great Business Plan] Do market research and know the conditions of your industry. Lenders may be more likely to approve borrowers in growing industries. As such, if you can prove that your company’s sector or market primes your business to expand and succeed, present your argument firmly somewhere in your application. It also demonstrates your knowledge as an entrepreneur and business strategist. Know your credit score. Often, a credit score below a certain number is an immediate disqualifier for loan applications, even if your company is primed for rapid growth and you’re working on repaying your loans. Find out your credit score, and if it is too low, work to improve it before seeking capital.

Meet with a small business expert and attend training provided through the SBA. As with any important small business decision, you shouldn’t go this one alone. Consult experts and seek training on how to apply successfully for the funding your company needs to thrive.

As a small business owner, you should also establish a strong online presence and pay attention to how your company looks online, because lenders will be reviewing this information, too. Online review sites such as Yelp, Angie’s List and TripAdvisor help paint a picture of your operations and serve as an indicator of your overall business health. Social connections and customer relationships on social media can also play a role in a lender’s decision to offer financing.

How to find business financing options

Trying to find financing for your startup can easily turn into a full-time job. From building a network of investors to connecting with other founders, financing is at the heart of any business’s success, but it can turn into a serious time commitment.

However, by working with the right investors and taking the time to be purposeful in your pitch, you can take important steps toward funding your company. Make no mistake; it will be difficult, but by being precise in your search, you can position yourself for success.

“What I find is when people get lots and lots of rejection and little progress, oftentimes they’re just talking to the wrong investors,” said Mike Kisch, founder and CEO of sleep technology company Beddr. “If they had a better sense as to who the right investor was, they’d see their success rate go up fairly dramatically.”

Editor’s note: Need a loan for your business? Fill out the below questionnaire to have our vendor partners contact you with free information.

Warm introductions

The key to obtaining funding as a startup is the “warm introduction,” according to Casey Berman, managing director of VC firm Camber Creek. Berman said startup founders can look to their immediate network to try to find opportunities. While this includes obvious connections – like friends and family or other startup owners – it’s also important to consider professional services your company is using. If, for example, you work with a legal consultant or PR company, they may be able to help you find funding, he said.

The key, said Berman, is to partner with a company, whether it’s an investment firm or a payroll processing service, that adds value to your business.

“The warm introduction goes a lot further than really any other potential avenue,” he said. “Any professionals that are surrounding the company should absolutely be the first stop and the first location a company goes to try to have access to venture capital and a warm introduction.”

This is how you can differentiate your startup from its peers. Building a network of individuals that help pull your company up is the best way to give your business the support it needs.

How to target a venture capitalist for business financing

Venture capital may be the most difficult to secure, primarily because VCs have very specific investment strategies, want to invest for a relatively short period of time (three to five years) and may want to be involved in your business’ operations and decisions. VCs also usually want to invest sums larger than a few million dollars.

Most startups begin with early seed funding from friends and family, angel investors, or accelerators. If you’re already past this step and are looking for longer-term funding, it’s important to approach VC firms the right way. Kisch said it’s crucial to find the right investor for the stage your business is in. There are thousands of VC firms out there, so think critically about your business and which investors make the most sense.

“Finding the right investor who is at the right stage of where your company is but [that] also has some exposure to the environment that you’re going to be in – I think that’s the best way that you’re going to have a productive relationship,” Kisch said.

Once you’ve developed a shortlist of VCs that invest in your space and can provide the level of guidance and added value you’re looking for, it’s time to set up a formal process.

With your list in hand, Berman recommends spending one to two weeks trying to make that initial contact with the company. Once you’ve made contact, keep the company up to date on business developments and other information that are relevant to that investor. This ongoing conversation can help you build relationships with investors. When it’s time to raise funding, you’ll have to pitch the VC firms you’ve been in constant communication with.

“The CEO really needs to commit to raising money and doing what’s called a roadshow to get in front of a large number of venture funds to find the right partner,” Berman said.

Berman said the whole process, from initial meetings to closing a deal, can take anywhere from 60 to 90 days, or even longer, so plan accordingly. He also recommended looking for funding well before your business will need it.

How to stay motivated

One of the biggest variables throughout this process is motivation. For a startup, rejection is part of the journey. Staying motivated during trying times can be difficult, but it will be the backbone of your business’s success.

Kisch has been through five rounds of funding with various startups he’s worked for. He said one thing that has been helpful for him throughout the screening process is that he has tried to maintain low expectations so that rejection doesn’t overwhelm him. Rather than seeing it as a failure, Kisch sees rejection as part of the process.

“If someone says no, I just think, ‘That’s cool, I guess I’m just one step closer to a yes,'” he said.

The other takeaway from rejection is how you adapt and respond. Kisch said that a stream of critical feedback allows you to better your product and hone your pitching skills.

He said a good way to think about it is you’re not getting rejected because your idea or product is bad; it’s because it can be slightly improved or you haven’t developed the skills to pitch it in the most effective way. This keeps the responsibility in your hands without adding any pressure. Everything is a work in progress, and even today’s most successful companies had to deal with challenges at one point.

“Raising money from people is a very difficult thing,” he said. “You just have to sort of roll with it and be aware that there are a lot of companies that were initially rejected that became generation-defining companies.”

Max Freedman, Matt D’Angelo and Jennifer Post contributed to this article. Source interviews were conducted for a previous version of this article.