Exploring Alternative Funding Options

Previously: Building Your Creditworthiness and Exploring Options with Lenders

If you’ve gone through the traditional bank loan process and found yourself hitting roadblocks due to credit challenges, limited time in business or documentation gaps, it may be time to look at alternative options. 

Fortunately, traditional loans aren’t the only choice available to small business owners. In this blog, you can explore other lending sources to see if they could be the right fit for your business.

When To Look Beyond the Bank

There are many valid reasons a small business may not qualify for a conventional bank loan. Perhaps your credit score needs more time to improve, or your business hasn’t been operating long enough to establish a financial track record. Maybe you’re still building consistent cash flow. Whatever the case, alternative funding options exist to help fill these gaps and support your business journey. Here are just a few:

• SBA Loans and Microloans
  Backed by the Small Business Administration (SBA), these loans are partially guaranteed by the government, making them less risky for lenders. SBA microloans are a great option for startups or businesses needing smaller loan amounts (typically under $50,000).
   
• Peer-to-Peer Lending
  These platforms match borrowers directly with individual investors. Approval criteria may be more flexible than that of banks, but rates and terms can vary widely depending on your financial profile.
   
• Community Development Financial Institutions (CDFIs)
  CDFIs are mission-driven lenders that specialize in working with underserved communities. They often provide flexible financing and hands-on support for businesses that may not meet traditional lending standards.
   
• Online Lenders and Crowdfunding
  Fintech lenders and crowdfunding platforms offer fast application processes and can work well for short-term capital needs or product-specific fundraising efforts. However, they often come with higher interest rates and less personalized support.

Weighing the Pros and Cons

Each of these funding options comes with trade-offs. The right choice for your business will depend on your financial needs, your repayment ability and how much flexibility you’re looking for.

Factors to Consider:

• Speed of Approval
  Alternative lenders often offer quicker turnaround than traditional banks. However, timelines vary based on the lender’s workload, available funding and your documentation readiness.
   
• Interest Rates and Fees
  Rates can fluctuate significantly. SBA loans may offer lower interest and longer repayment terms, while peer-to-peer or online lenders may charge more due to the higher perceived risk.
   
• Long-Term Business Impact
  A quick influx of capital can help fuel growth, but it’s important to make sure the repayment terms won’t hinder your cash flow. Depending on the loan’s structure, high interest or short repayment periods could create financial strain down the road.

Exploring alternative funding is a strategic move. These options exist specifically to support businesses in their efforts to become innovative, resilient and grow. By choosing the right funding source and understanding the terms fully, you can keep moving forward without compromising your long-term goals.

Contact The Iowa Center for more information about alternative funding options.

Next up: Preparing for the Next Loan Application