Large, well-financed companies typically have an easy time obtaining financing in comparison to small businesses, especially those that are just starting out. In fact, for some fledgling firms, obtaining a loan or and advance from a traditional bank may be nearly impossible. In part, that is because most traditional banks don’t make a meaningful profit on loans of under $200,000.

Many small business, then tend to look into other ways to obtain needed working capital. This is where alternative financing options shine.

What Is Alternative Financing?

Private lenders, capital companies and finance agents provide all types of optionality in funding when a bank or credit union will not suffice. Here are several forms of alternative financing that you may find interesting:

  • Merchant Cash Advance: Working capital is provided based on the business’s future credit card sales.
  • Franchise Financing: Specialized financing is available to franchise owners, even if the franchisor does not provide it.
  • Accounts Receivable Financing: Provides an immediate influx of cash in exchange for unpaid invoices.
  • Bridge Loans: Loans designed to help businesses “bridge” the transition form one phase to the next.
  • SBA Loans: The Small Business Association, an arm of the federal government, provides loans specifically for small businesses.

Typical Reasons Why Small Businesses Utilize Alternative Financing

The following are a few typical situations in which small businesses can turn to alternative financing options to propel them forward:

  • Inventory purchase including raw materials or new equipment
  • Buying out a business partner
  • Expanding to new locations
  • Bad weather events that forces a business to close for a few days or longer
  • Fluctuations in the local and national economic landscape that affect sales
  • Unexpected events that curtail cash flow
  • Pandemics or other unpredicted emergencies