Can’t Get a Business Loan? Consider These Alternatives

Banks and credit unions tend to offer the most affordable business financing — if your business can qualify. Only a fraction of small-business loan applications are approved, and this disparity is getting worse.

According to the Federal Reserve’s 2022 Small Business Credit Survey, approval rates from both small and large banks declined from 2019 to 2021. Among small-business owners who received at least some of the financing they sought, small banks approved 8% fewer applicants in 2021 compared to 2019, and large banks approved 15% fewer applicants within the same time frame.

However, many business owners still need capital to cover everyday expenses — especially as they continue to meet economic challenges such as supply chain disruptions and rising inflation.

If you can’t get a traditional bank loan, you might be looking for some alternative ways to fund your business. Here are three options to consider.

Online lenders can offer a variety of types of small-business loans and generally have more flexible requirements than bank lenders — although the cost to borrow is usually higher.

And whereas banks and community financial development institutions may be feeling the pressure from economic changes — like the Federal Reserve increasing interest rates — alternative lenders typically fill the space in the market, says Josh Palkki, chief credit officer of Founders First Capital Partners, a San Diego-based small-business lender that offers revenue-based financing and business advisory services.

Alternative lenders are less likely to feel the same pressure as bank lenders, or to shift their internal processes and ways of evaluating business loan deals, Palkki says. These lenders can be less risk-averse because they typically charge higher interest rates than conventional lenders.

Many online business lenders offer streamlined application processes, and some can provide funding in as little as 24 hours. To find the right lender for your needs, you should consider factors such as types of loans offered, eligibility criteria, funding speed and customer service, as well as interest rates and fees.

For free financing that you don’t have to repay, small-business grants can be a good option. Business grants are available from federal, state and local governments, as well as private corporations.

You can browse thousands of federal small-business grants on Grants.gov, which is managed by the Department of Health and Human Services. These grants often have very specific eligibility criteria, however, so you’ll want to review your qualifications before applying.

There are also local economic development agencies and corporations that are responsible for promoting company formation and job creation, says Hal Shelton, a small-business mentor serving the Washington, D.C. chapter of SCORE — a nonprofit that offers free resources to small-business owners.

Many of these local organizations offer business grants and even low-cost loans. For example, New York’s Empire State Development agency offers a range of funding opportunities for small businesses, including the Global NY Grant Fund program, which provides grants up to $25,000 to New York-based businesses looking to start or increase their global exports.

Although small-business grants are ideal if you can secure them, applying can be competitive and time-consuming. If you need faster financing, you’ll want to consider other options.

If you have a loyal customer base and the drive to market your business, you might want to raise equity. With an equity crowdfunding platform, you can raise capital online — investors give you capital in exchange for equity ownership in your business.

After Charles Alexander and his co-founders couldn’t get a bank loan for their business, The Black Bread Company, they decided equity crowdfunding was a good option that tied to their community roots.

The goal was to be able to offer the lowest buy-in for shares, Alexander says. They wanted people to be able to invest in a company they’re familiar with — let them be part of the growth and do it at a rate where almost anyone could be part of the journey, he says.

Equity crowdfunding isn’t a quick and simple financing solution, though.

“It’s a long process when you’re giving up shares of your company to the public,” says Alexander. He notes that business owners will need to make sure they meet the U.S. Securities and Exchange Commission guidelines and regulations.

Many equity crowdfunding platforms — like Fundable, StartEngine and Netcapital — offer a variety of support services to help business owners through the fundraising process. StartEngine, for instance, provides small-business owners with a dedicated fundraising strategist who works with them throughout their campaign and helps with both marketing and advertising strategies.

Preparing an equity crowdfunding campaign can be frustrating, says Alexander. “But once we launched, it was awesome. We literally raised about $660,000 in 30 days.”