Alternative Lending for Small Business - What Are Your Options?

Alternative Lending for Small Business - What Are Your Options?
Eric Goldschein
on March 23, 2020
Read in 3 min

The world of lending has shifted.

No longer are banks the sole gatekeepers of capital, which is good news for small business owners, who were often stymied by traditional banking institutions.

Now some small business loans for startups come from “alternative lenders,” mainly based online.

Funding OptionsAPRDo you qualify?Time in BusinessAnnual Revenue
Funding Option
Lendio Get Started
Starting at 5%
Estimated Apr
Do you qualify?
Time in Business
At least 6 months
Annual Revenue
At least $100K
Funding Option
Kabbage. Learn More
1.5% - 10%
Monthly Fee Rate
Do you qualify?
Time in Business
At least 1 year
Annual Revenue
At least $50,000

What Are Alternative Lenders?

Alternative lenders are non-bank lenders.

While about 80% of small business loan requests to traditional banks are turned down, alternative lenders are more flexible and welcoming to small business owners.

They also offer a faster approval process, and often deal in smaller loan amounts.

Why Should Small Businesses Work with Alternative Lenders?

Since alternative lenders give business owners faster and easier access to capital of all kinds, on more flexible terms, many are turning to them in droves.

In this post-recession economy, the fact that a new class of lender will take a chance on small business owners is an opportunity few can overlook.

What’s the Catch?

Small business owners should be aware that alternative lenders tend to charge higher interest rates than traditional bank loans, with shorter repayment windows and more frequent payment periods (weekly, rather than monthly, for example).

Some have had issues maintaining solvency due to overly flexible terms.

Your interest rate will depend on a few typical factors—such as credit score, time in business, and annual revenue.

But it will also depend on the kind of loan you are looking for.

What Kind of Loans Can An Alternative Lender Offer?

Every business has different needs, and the right small business loan type for them will vary.

Alternative lenders can offer many of the same opportunities for working capital that a traditional institution do, and a few they don’t.

Short-Term Business Loan

A typical business loan that companies can use for a variety of purposes, from fixes to jumping on a great inventory bulk deal.

They typically range in amount from $2,500 to $250,000, to be paid off anywhere from 3-18 months.

Though the time to funding is short, the interest rate can be high (depending, as mentioned, on the factors above).

Term Loan

As opposed to a short-term loan, a term loan is repaid over a longer period of time (1-5 years) and can be used for even larger investments, typically up to $500,000.

Business Line of Credit

A line of credit, or revolver loan, gives you access to funds (typically $10,000-$1,000,000) that you can draw on at any time, and only pay interest on the money you’ve withdrawn.

You’re usually free to continue to draw on your line up to your limit, paying each draw back on a separate payment schedule.

Business Credit Card

Business credit cards are not unlike personal credit cards, though they may have some business-specific perks and rewards based on business and travel expenses.

They will also help you establish a business credit score.

Loan amounts are usually a bit higher than what you might get on a personal card as well.

Merchant Cash Advance

An “MCA” is when a lender buys a piece of business’ future revenues, which you pay back over time with your daily sales.

This is an appealing option for those who have fluctuating revenues:

When business is slow, your repayment is slow, and vice versa.

Because of this, a merchant cash advance has a factor rate (typically 1.14-1.18), rather than an interest rate.

Invoice Factoring

Another form of alternative financing is to pre-sell outstanding invoices—between 50-90 percent of their value—and split the remaining value when your customer has paid.

The factor rate is about 3 percent per week.

Time to funding can be as little as 24 hours, making it a quick fix.

SBA Loan

A Small Business Administration loan comes directly from the government agency, and can be used for working capital, refinancing other debts, franchising, and more.

These loans have generous terms, including low rates and long repayment periods.

Personal Loans for Business

If you take out a personal loan, there’s no reason why you can’t use it for business purposes (unless stated otherwise).

Startup Business Loans

Again, if you’re starting a new business and have little business credit history, you can utilize a number of options to obtain the capital you need.

Startup business loans can come in the form of leveraging your personal assets and credit, using peer-to-peer lending services, microloans from nonprofits, crowdfunding, credit cards and more.

There are dozens of options out there for alternative lenders, and some can be used in conjunction with one another.

If you need an infusion of capital in the near future, consider speaking with an alternative lender before you approach your local bank.

You might enjoy the change of pace.

See Business Lenders

Eric Goldschein Finance Journalist

Eric Goldschein is a freelance journalist who covers entrepreneurship, small business trends, emerging technologies, culture and sports.

He was previously the managing editor of, and has written for Business Insider, Trep Life, the Huffington Post, Fundera and more.

Important Disclosures. Please Read Carefully.

Persons facing serious financial difficulties should consider other alternatives or should seek out professional financial advice. This website is not an offer to lend. is not a lender or lending partner and does not make loan or credit decisions. connects interested persons with a lender or lending partner from its network of approved lenders and lending partners. does not control and is not responsible for the actions or inactions of any lender or lending partner, is not an agent, representative or broker of any lender or lending partner, and does not endorse any lender or lending partner. receives compensation from its lenders and lending partners, often based on a ping-tree model similar to Google AdWords where the highest available bidder is connected to the consumer. Regardless,’s service is always free to you. This service is not available in all states. If you request to connect with a lender or lending partner in a particular state where such loans are prohibited, or in a location where does not have an available lender or lending partner, you will not be connected to a lender or lending partner. You are urged to read and understand the terms of any loan offered by any lender or lending partner, and to reject any particular loan offer that you cannot afford to repay or that includes terms that are not acceptable to you. By submitting your information via this website, you are authorizing and/or lenders and lending partners in its network or other intermediaries to do a credit check, which may include verifying your social security number, driver license number or other identification, and a review of your creditworthiness. Credit checks are usually performed by one of the major credit bureaus such as Experian, Equifax and Trans Union, but also may include alternative credit bureaus such as Teletrack, DP Bureau or others. You also authorize to share your information and credit history with its network of approved lenders and lending partners. For qualified consumers, our lenders offer loans with an Annual Percentage Rate (APR) of 35.99% and below. For qualified consumers, the maximum APR (including the interest rates plus fees and other costs) is 35.99%. All loans are subject to the lender’s approval based on its own unique underwriting criteria. Example: Loan Amount: $4,300.00, Annual Percentage Rate: 35.99%. Number of Monthly Payments: 30. Monthly Payment Amount: $219.36. Total Amount Payable: $6,581.78 Loans include a minimum repayment plan of 12 months and a maximum repayment plan of 30 months. In some cases, you may be given the option of obtaining a loan from a tribal lender. Tribal lenders are subject to tribal and certain federal laws while being immune from state law including usury caps. If you are connected to a tribal lender, please understand that the tribal lender’s rates and fees may be higher than state-licensed lenders. Additionally, tribal lenders may require you to agree to resolve any disputes in a tribal jurisdiction. You are urged to read and understand the terms of any loan offered by any lender, whether tribal or state-licensed, and to reject any particular loan offer that you cannot afford to repay or that includes terms that are not acceptable to you.

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The lenders and lending partners you are connected to will provide documents that contain all fees and rate information pertaining to the loan being offered, including any potential fees for late-payments and the rules under which you may be allowed (if permitted by applicable law) to refinance, renew or rollover your loan. Loan fees and interest rates are determined solely by the lender or lending partner based on the lender’s or lending partner’s internal policies, underwriting criteria and applicable law. has no knowledge of or control over the loan terms offered by a lender and lending partner. You are urged to read and understand the terms of any loan offered by any lenders and lending partners and to reject any particular loan offer that you cannot afford to repay or that includes terms that are not acceptable to you.

Late Payments Hurt Your Credit Score

Please be aware that missing a payment or making a late payment can negatively impact your credit score. To protect yourself and your credit history, make sure you only accept loan terms that you can afford to repay. If you cannot make a payment on time, you should contact your lenders and lending partners immediately and discuss how to handle late payments.