Getting capital is essential for any startup, but many entrepreneurs struggle with how to get small business loan funding when traditional banks say no.
For startups and minority-owned businesses worldwide, understanding small business financing options beyond banks is key. By exploring small business loan alternatives – from microfinance and community lenders to fintech platforms – you can find the working capital you need.
Banks often decline loan requests if your business is new, has limited credit history, or lacks collateral. This leaves owners asking “how to get small business loan” in another way.
The good news is that alternative small business loans exist just for situations like this. Non-bank lenders have looser requirements and may value factors like cash flow or community impact.
The key is knowing which small business financing options to pursue: credit unions, CDFIs, online lenders, and grants can all be part of the answer.
Microloans and Community Lenders
One of the most viable alternatives to a small business loan is a microloan. Short-term microloans (up to ~$50,000 on average) provided either by non-profit organizations or governments are what small business microloans represent.
Microloans are designed for business owners who will fail the eligibility requirements for credit from banks. For instance, in the US, the SBA microloan program offers up to $50,000 (average loan of $13,000).
Around the world, microfinance organizations such as Grameen and Kiva offer microloans to under-banked business starters.
These may incorporate business training and repayment mechanisms best matched for business beginnings and minority business ventures that require an up-front cash injection.
There also exist neighbourhood community lenders. Money lent between underprivileged groups specifically is managed through credit unions and Community Development Financial Institutions (CDFIs).
The Federal Reserve further states that “CDFIs exist to help grow local economies…and support small minority-owned businesses”.
The majority of CDFIs provide quite low-cost loans and one-to-one mentoring. Smaller non-profit loan funds or community banks can also join state or regional guarantee programs.
Regional organizations are then more likely to consider new entrepreneurs or new business owners with nonconventional backgrounds.
Online and Alternative Lenders
Fintech platforms and online lenders offer many small business loans. These companies automate credit checks and approve loans much faster than banks.
One example is peer-to-peer (P2P) lending: platforms like Prosper and Upstart connect business borrowers directly with individual investors. P2P loans can fund you in days.
Other online lenders offer term loans and short-term cash advances. Merchant Cash Advances (MCAs) provide a lump sum in exchange for a percentage of future sales – repayment flexes with your revenue.
Equipment financing and invoice financing are also common online options: you use business assets or outstanding invoices as collateral to get fast cash.
Lines of credit and credit cards are further sources of quick funding. A business line of credit lets you borrow up to a limit and pay interest only on what you use. Many online lenders will give lines of credit after just a few months in business.
Business credit cards work similarly for day-to-day expenses (and can even earn rewards), though they often carry high interest rates. While these options can be expensive, they are small business financing options you can get quickly when banks say no.
Crowdfunding and Investor Funding
Sometimes, debt isn’t required at all. Crowdfunding platforms are a creative small business financing option.
In rewards-based crowdfunding (e.g., Kickstarter, Indiegogo), supporters pre-purchase products or perks, effectively financing your project without taking on a loan.
Equity crowdfunding (platforms like SeedInvest, Crowdcube, StartEngine) lets your business sell shares to the crowd. Crowdfunding funds are not “debt” – they come from equity or donations – but they can provide vital capital to replace a bank loan.
Many businesses pair crowdfunding with small loans: for example, raising a small amount on Kickstarter to qualify for a larger microloan or grant. Angel investors and venture capital are other options, especially for startups with high growth potential.
These are not loans (investors take a stake), but rather small business financing options that substitute for debt when owners choose not to borrow.
For entrepreneurs who want to get loan financing, however, the key is that crowdfunding and equity investors can fund costs without needing bank approval at all.
Community and Government Programs
Many regions have programs for underserved businesses. In the US, agencies like the SBA guarantee certain loans, so you can qualify for bigger loans.
The SBA also has mentoring and grant programs for minority entrepreneurs. Similar agencies exist in other countries, and many development banks offer small business loans.
These government-backed options often focus on business growth goals (job creation, innovation) and can have favorable terms.
For example, alternative lenders exist for borrowers who can’t meet bank criteria. In practice, this means local or federal programs for women-owned, minority-owned, or rural businesses.
Non-profit organizations (like Accion Opportunity Fund in the US) have a track record of offering affordable term loans to small businesses.
Many countries have entrepreneurial funds or microcredit schemes to support individuals in disadvantaged communities. Research your country’s small business grants and development programs since these grants or loan guarantees are small business financing options that require little to no credit history.
Bootstrapping and Other Funding
And don’t forget personal and creative funding. Many founders use personal savings or credit cards to cover startup costs when banks decline their requests. This isn’t a bank loan, but it’s a legitimate small business loan alternative for seed funding.
Borrowing from friends or family is another option (albeit with personal risk). Small business owners sometimes fund their own business or with personal loans if they can’t get a bank loan.
These options let you move forward while you build business credentials. Meanwhile, keep building credit and documentation. Even alternative lenders review your finances: clean up your credit report, prepare a solid business plan, and be ready to explain how you’ll repay any loan.
Alternative loans have higher interest, so borrow only what you need and compare offers carefully. Using a combination (e.g., microloan plus short-term online loan) can optimize costs and approval chances.
Conclusion
Just because a bank says no isn’t the end of the road. Learning how to get small business loan funding through other channels opens up multiple small business financing options.
For example, many entrepreneurs start by making a list of all the possibilities: microloans for small businesses, community/CDFI loans, online lenders, crowdfunding, grants, or personal funds.
List every small business loan alternative you can think of, then compare rates and terms.
Often, a combination of solutions works best (say, a small microloan plus a short-term online loan). By systematically exploring alternative small business loans and other funding channels, you’ll make sure you don’t miss any opportunity.
Persistence and creativity in using these non-traditional funding sources will get you the capital your business needs when banks say no.
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