Key takeaways

  • If you can’t get approved for a business loan at a bank, there are alternative options
  • The SBA offers community-based loan programs that are lenient with approvals
  • Bootstrapping, grants and equity financing help startups avoid debt

If you want to start or expand a business, one of the most popular ways to get funding is to borrow money from a bank. Bank small business loans tend to offer low interest rates and favorable repayment terms.

But traditional banks keep tight standards for credit. In general, banks might want to see a personal credit score of 670 or higher, two years in business and an annual revenue around $250,000.

If you struggle to qualify for a traditional small business loan, try one of these alternatives.

SBA loans

The Small Business Administration designed its SBA loan programs to help small businesses get access to business financing. It offers affordable interest rates capped by the SBA and long repayment terms like 10 years for working capital uses.

But SBA loans from a bank often have tight lending criteria similar to conventional business loans. For businesses that don’t qualify, the SBA does offer these options intended for disadvantaged business owners:

SBA microloans

The SBA microloan program serves at-risk communities and businesses that don’t qualify for traditional business loans. It’s characterized by its small loan sizes of up to $50,000, allowing for repayments as long as six years. Unlike standard SBA loans, you can’t use the microloan to refinance debt or to buy real estate. You can find these loans through the SBA’s approved list of microlenders, usually nonprofits.

Bankrate insight

The SBA Community Advantage loan pilot program ended on September 30, 2023, but borrowers can still work with mission-focused Community Advantage Small Business Lending Companies for 7(a) loans up to $250,000. These lenders must operate as Certified Development Companies (CDCs) or Community Development Financial Institutions (CDFIs), and their SBA loan portfolio must be at least 60 percent in underserved communities.

Credit unions

Credit unions are not-for-profit institutions. Instead of stockholders, a credit union’s members own and control the organization. This can lead to credit unions offering lower interest rates or fewer business loan fees than you might find with banks. But you’ll need to be a member.

Membership requirements can vary between credit unions. For example, Navy Federal is one of the largest credit unions in the U.S. But to join, you’ll need to be an active servicemember, veteran or an immediate family member. You also need to open a savings account with a $5 deposit.

Other credit unions have membership requirements that make it easy for just about anyone to join. For example, Affinity Federal Credit Union first requires you to be an employee of a participating business or be a member of a participating association or club like the Affinity Foundation.


Bootstrapping is the act of starting a business using personal resources like savings or borrowing from friends and family. The term comes from the idea of “pulling yourself up by the bootstraps.” This means that business owners will put in time and effort to make their business successful.

Bootstrapping is also characterized by limiting business expenses and using personal equipment when necessary to get the job done. Bootstrapping is beneficial because it keeps costs low and is an alternative to getting into debt before you can establish revenue.

Equity financing

Many small business owners turn to equity financing to finance building or expanding their business without going into traditional debt. Equity financing involves getting funding from investors, usually by giving away ownership of your company.

But to get approved, investors want to know your strategy for growing the business. As part-owners, they may also have control over how the business runs and decision-making. These investors understand the risk of funding your business but expect high returns once your business starts turning a profit.

You can get equity financing through:

  • Angel investors: Individuals that provide financing and mentorship
  • Venture capital firms: Financial organizations made up of investors aiming to finance high-potential startups
  • Initial Public Offering (IPO): Releasing shares of your company to the public as an entry into the stock market


Grants are a great way to start or grow a business without getting a business loan from a bank. They are cash awards that you don’t have to repay as long as you qualify for them. Depending on the terms, you might have restrictions on how you can use the money or be free to spend it however your business wishes.

There are many places to look for grants. Many local or state organizations and federal agencies offer grant programs that you can apply to. There are also privately run grant programs funded by businesses or non-profit organizations.

Eligibility for these grants will vary. Many non-federal grants are aimed at helping underserved groups that have historically lacked access to business financing. This includes:


Crowdfunding is a way to raise money from everyday people rather than a traditional lender. There are four primary types of crowdfunding:

Donation This asks people to donate money to your cause. There’s no expectation that you’ll repay the donors or offer them anything in return.
Debt You get money from contributors and promise to repay them in the future. Typically, these crowdfunding campaigns outline the repayment timeline and offer interest, giving the backers a chance to earn a return on their investment.
Reward This lets backers give your business money and receive something in return. Kickstarter is the best-known example of this type of crowdfunding. For example, you might offer a sticker, digital content or another award for funds. Effectively, this lets you sell products before you’ve produced them, raising funds that you then use to make and deliver the product.
Equity Popular for startup businesses, this form of crowdfunding sells a share of the ownership in the business in exchange for funds. This means investors may have a say in how you run your business.

Peer-to-peer lending (P2P)

Peer-to-peer lending involves borrowing money from other people rather than traditional lenders like banks and credit unions. Usually, borrowers and lenders work through an intermediary or marketplace website where borrowers can apply for loans, and people can invest their money into those loans.

The benefit of peer-to-peer lenders is that they offer easier qualifications and may offer better rates if you have strong credit. The online application also makes the process quick.

The drawback is that rates and fees can be much higher for peer-to-peer loans if you have bad credit. They may also charge higher fees.

Alternative lenders

Most businesses rely on banks or credit unions to get business loans. But there are also alternative lenders, which are usually web-based businesses, private lenders or peer-to-peer lending sites.

Online lenders can be great to work with thanks to their easy application process and quick loan funding. They may also offer easy qualifications. But online lenders often have lower loan maximums and may charge very expensive rates for applicants who need a bad credit business loan.

On top of more typical term loans, alternative lenders offer other types of business financing, like lines of credit, invoice-based loans and merchant cash advances.

Business lines of credit

A business line of credit is a flexible source of funds for your company. When you’re approved for a line of credit, the lender will set a credit limit that you can draw from.

You’re free to draw funds from the line of credit up to that set limit. You only pay interest on your outstanding balance, and you’re free to leave the balance at $0 if you don’t need funds at the moment.

This makes a line of credit very useful for covering unexpected, short-term expenses. But business line of credit interest rates can be higher than term loans. If you carry a balance, you could wind up paying a lot in interest.

Bankrate insight

Business credit cards are similar to business lines of credit but may have features like sign-up bonuses and the chance to earn rewards. Another potential benefit is that you can avoid paying interest charges if you keep your balance paid off each month. This can make business credit cards one of the best ways to build business credit and cover short-term expenses.

Invoice financing

If your company finds itself waiting on customers to pay the invoices you submit, you may turn to invoice financing to get cash quickly.

With invoice financing, you use the money you’re due based on the invoices you’ve submitted as collateral to get a loan. The lender will give you cash upfront with a set repayment plan and interest rate. As you get paid for those invoices, you can repay the debt.

Invoice factoring

Invoice factoring is much like invoice financing. It uses the invoices you’ve submitted as a way to help your business get a loan.

What makes it different is that the factoring company actually buys your invoices from you. When your customer pays the invoice, the money goes directly to the factoring company rather than you. The factoring company buys your invoices for between 70 and 90 percent of their face value, giving it room to make a profit.

Merchant cash advances

Merchant cash advances (MCAs) are an option for companies that make a lot of sales through debit and credit card purchases. With an MCA, the lender gives you a lump sum of cash. You then repay that loan through a percentage of your future card-based sales.

For example, a lender might give you $10,000 with a 1.15 factor rate and demand 10% of your sales until the loan is paid back. That means until you’ve paid back $11,500, you’ll have to give up 10 percent of your revenue either daily or weekly.

They’re useful for companies because they don’t require great credit and can be a quick source of funding. But there is little regulation regarding MCAs, and the rates that MCA companies charge can be quite high.

Plus, it’s easy to get trapped in a cycle where you use an MCA to help with cash flow issues, only to find that the MCA makes those issues worse by taking a large percentage of your revenue.

When to choose a bank business loan alternative

There are a few good reasons to explore alternatives to bank loans. First and foremost, they’re a good option for a business that doesn’t have enough time in business or revenue to get approved by a bank. Alternative loans can also fund faster because they don’t have a prolonged underwriting process, which is beneficial if businesses have a time sensitive opportunity.

Bottom line

If you want to get a small business loan, looking beyond term loans from a major institution may pay off in the long run. While traditional loans from big banks have strict requirements, alternative lenders and funding sources introduce solutions for new businesses or those with subprime credit.