What Loans Are Available for Small Businesses?
We offer a variety of non-traditional business loans. That way, you can pick the financing type that makes the most sense for your specific circumstances and business objectives. Below are the top funding options for small businesses.
1. Alternative Business Term Loans
Term loans, also commonly referred to as “Installment Loans”, are one of the most popular alternative business loan types. They are what most people think of when referring to business loans.
Online lenders provide term loans that are structured similarly to what you would expect to find at a large bank or credit union. You receive a lump sum of money, which is paid back in intervals over time. Interest is either fixed, or variable, depending on the loan agreement.
Term loans encompass two main financing types: short-term and long-term business loans. Both provide companies with an infusion of working capital and offer unique advantages.
Short-term loans have tighter repayment windows, meaning a company has less time to pay back owed funds. On average, term lengths are typically anywhere between 6 months and 2 years.
While traditional financiers often turn down small business owners seeking capital, we are able to approve a wider-range of applicants. At Clarify, we don’t require collateral and all types of credit can be approved.
Long term loans have lengthier repayment windows, giving the borrower more time to repay debt. Long-term loans are very difficult for small business owners to secure through a traditional bank.
Even businesses with relatively strong financials frequently run into the issue of a denial. Despite the proven profitability of these companies, many simply do not meet the rigorous eligibility criteria set by larger financial institutions.
This can limit initial access to funds for several of the SMB we end up working with down the line. Fortunately, we’re able to approve many businesses who have had their applicant rejected, providing alternative capital solutions.
For long-term loans, being an established business with a solid track record of churning profit will increase your competitiveness as a prospective borrower.
2. Equipment Loans
Equipment loans, also known as “Commercial Equipment Loans”, are a good option for companies who need to buy new or used equipment. Common uses include medical equipment for doctors, nurse practitioners, and dentists, and heavy machinery, for farming, agriculture, and construction.
A benefit to business equipment loans is that you can be approved with bad credit and there’s no personal guarantee needed. The machinery being leased or borrowed is used as collateral. This allows small businesses to take out a commercial equipment loan without ever having to put up their personal assets as security.
3. Invoice Factoring
Also known as Invoice Financing, factoring provides immediate business funding. Factoring is a common solution for businesses who struggle to collect on-time payments from their customers. When receivables are delayed, it can create cash flow issues, especially for companies who experience periods of slim profit margins and have higher operating costs.
Companies who pursue invoice factoring usually desire quick access to funding and want to reduce the time they spend getting squared away with customers. Businesses who choose this financing type will go through a third party company. The third party organization becomes entirely responsible for accounts receivable.
The way it works is simple. The factoring company purchases the invoices from the primary business, providing an infusion of working capital. A fee is charged as payment for the service, which is typically a small percentage of the invoice amount.
At Clarify, we provide upfront advances, covering up to 100% of the total invoice value. Once the invoice clears, we pay out the remaining amount.
Similar to equipment loans, all types of credit can be approved for this funding option and we do not require a personal guarantee. The invoices are used as collateral, which means your personal assets stay protected.
4. Business Line of Credit
A line of credit, also known as a revolving line of credit, works differently than unconventional business loans. It's a financing alternative that provides flexible access to working capital.
If you have a credit card, you’re probably somewhat familiar with how a line of credit works. The two are very similar in structure. Just like you’d apply for a consumer credit card, you submit an application to determine eligibility. Once approved, you receive a maximum credit limit. You can borrow up to your assigned limit, at any time.
Regardless of the APR, you only pay interest on the funds you choose to withdraw, rather than the full amount of credit you’re extended. This gives small business owners more control over their financial obligations.
A huge advantage of a non-traditional business line of credit is the convenience. The credit line is there for you when you need it, at all times, and can be used for any business related expense.
Funds can be drawn from on an as-needed basis, making it an excellent option for businesses who want to protect themselves with a financial safeguard. Many of our borrowers, for example, have decided to take out a credit line as a cash reserve. It allows businesses to plan for the unplanned.
When emergencies and unanticipated expenses happen, having access to a credit line helps things stay running smoothly. Because funds replenish as they’re repaid, companies can continue to tap into the pool of funds through different stages of their business growth, so long as the credit line remains open.
5. Merchant Cash Advance (MCA)
A business advance, or a “cash advance” provides instant access to capital. Small businesses who decide to finance with a merchant advance will receive a lump sum of cash upfront in exchange for a portion of their future credit card sales.
An MCA is used as an alternative to traditional small business loans. They’re intended to resolve immediate financing needs. This might include bridging cash flow gaps, weathering a seasonal fluctuation in revenue, or dealing with an unexpected operational expense.
An advantage of a non-traditional business advance is that business owners are able to use the advance instead of taking money from other parts of their business. Rather than making internal cuts to decrease costs, or pulling from profits, business owners and entrepreneurs can secure outside funding to keep their account payables intact.
Applicants with less-than-stellar credit can be approved for this financing type. Similar to other popular alternative lending products we offer, there is no need for collateral.
Am I Eligible for an Alternative Business Loan?
Alternative lending companies will vary in what they look for in applicants. While most banks are fairly similar in what is required from borrowers, online lenders have a little more flexibility when it comes to eligibility criteria.
At Clarify, we aim to accommodate as many borrowers as possible. We believe small businesses play an integral role in the business ecosystem and are passionate about connecting entrepreneurs to financial resources. Below are the main elements our lenders look at.
Bank statements provide lenders with information about operating cash flow. At Clarify, we’ll ask for your last 3 months of bank statements.
We aim to keep paperwork light and won’t ask for additional financial documents. Referencing your bank statements is an easy and quick way for us to verify financials and offer fast business loans with integrity.
Average Monthly Revenue:
Most businesses we work with have a monthly revenue of $10,000 and up. The more revenue your company generates, the larger the loan size you can expect to be approved for.
In a perfect world, applicants would always be debt-free and own businesses generating high-levels of income. That being said, a situation like that is rarely the reality for small businesses. Most businesses carry some amount of debt.
Lenders will review your debt-to-income ratio to get an idea of your current financial obligations. DTI ratio is used to help lenders determine what they can reasonably expect you to comfortably pay back. Loan sizes reflect what financiers believe is affordable for you, repayment-wise.
Amount of Time in Business:
Businesses with a demonstrated history of success will have the best approval odds. Typically, we like to see that businesses have been operating for at least 6 months. Lenders see it as a good sign when your business has a solid track record of profitability.
Having high credit is advantageous if you’re looking to borrow funds. A history of responsible borrowing habits tells lenders you’re unlikely to default on a loan.
At Clarify, we understand that not everyone will have perfect credit. Fortunately, credit scores are only one factor amongst several.
Applicants with bad credit can be approved for business loans. We help entrepreneurs and small business owners with all types of credit access working capital.Get Instant Approval
Top Uses for Alternative Business Loans
The great thing about alternative commercial funding is that it isn’t rooted in one-size-fits all ideology. We understand that small companies and entrepreneurs have vastly different financial priorities. At Clarify, we offer a selection of loan products to be used for a wide range of business purposes.
We provide the working capital upfront, giving you the freedom to allocate funds how you see fit. Here are some common uses for non-bank business loans:
1. Expanding Your Team
Periods of growth are exciting and something most companies aspire for. Expansion can also be costly, as business owners often need to scale their team to keep up with demand.
Access to fast funding makes hiring more skilled employees affordable. Investing in the right talent helps entrepreneurs take their business to the next level.
2. Advertising and Marketing
Increasing sales is essential to the bottom line of growing businesses. Upping your marketing and advertising spend means attracting more qualified customers and optimizing conversions. An infusion of working capital makes building out and implementing a strong marketing strategy accessible.
3. Seasonal Fluctuations in Cash Flow
Many industries have regular and predictable periods where they bring in less revenue than average. During these slow months, companies operate on slim margins and have limited access to capital. One unanticipated expense can bring on a slew of pressing problems to address.
A business loan can provide the means necessary to bridge cash flow gaps and provide additional cash reserves. That way, you don’t have to scale back your team or pull funds from other important operational areas.
Some small businesses need to have a large amount of inventory readily available, usually at a warehouse or storage facility. This is especially common for specific industries, like retail and restaurants.
Funds can be used to purchase additional stock to prep for and get through peak seasons. Having extra cash to allocate towards inventory makes it possible for businesses to purchase products in bulk and get the best pricing available.
5. Refinancing Outstanding Debt
Not all debt is created equal. For companies holding debt at high-interest rates or with unfavorable loan terms, refinancing can make paying back owed funds much more manageable.
Consolidating and refinancing existing debt can save a company thousands of dollars over the life of a loan and lower monthly payments. Businesses who refinance through Clarify have access to competitive alternative business financing.Apply for an Alternative Loan
Frequently Asked Questions About Alternative Loans
How do I get a small business loan when the bank says no?
Banks say no all the time, even when the applicant has sound financials and a strong, viable business plan. Large banks and credit unions are risk averse and their denial rate reflects it.
Non-bank lenders provide alternative financing solutions. Online lenders, like Clarify Capital, regularly extend fast funding to small businesses and entrepreneurs following a bank loan denial.
What are the alternative methods of financing?
Alternative financing options include a selection of different loan products. One of the most common types is short-term business loans. You’ll find a synopsis of alternative business funding on our site, where we’ve created a guide for borrowers less familiar with the term. We hope our outline helps you in your understanding!
Who are alternative business lenders?
The alternative lending industry includes a multitude of alternative lending companies. If you’ve done a quick google search, you’ll probably see there’s a lot of us out there.
Every online lender is certainly not the same. It’s always good to start with reputation when you’re looking for alternative business loans. We don’t take our reputation as a top alternative lending company lightly. When you work with us, we consider you family.
What is the most popular alternative loan?
Short-term loans are a top business loan option. That being said, when selecting a loan product, it’s important to consider your unique circumstances.
The best alternative business loans are the ones that make sense for the goals and objectives of your company. To make things easy, our financial advisors are always available to walk you through the process and help you make a loan selection tailored to your needs.
Is it difficult to be approved for an alternative business loan?
No. We approve applicants with different types of credit and offer loan products with no collateral required.
We provide working capital to newer business, young businesses, and more established companies with a history of operational success. Compared to traditional financing options for small business, it's actually much easier to be approved for business funding when you work with an alternative lending company.
What is the best option for getting a small business loan?
In many situations, the answer is a non-traditional lender, or online lender. Banking is a highly regulated industry, and traditional banks have to follow specific guidelines.
Unfortunately, these guidelines don’t always allow larger financial institutions to grasp the full financial picture of each business model and its growth potential. The stringent qualification criteria results in a vast number of small businesses being denied funding.
Online lenders, like Clarify Capital, have significantly less rules and restrictions to deal with. We’re able to look at your company from a more holistic perspective and base funding decisions on criteria established independent of the excessive red-tape imposed by regulatory agencies. This allows us to approve a much higher number of small businesses needing access to working capital than our larger, traditional counterparts.