Finding your business funding can be difficult. Traditional lenders, like big banks and credit unions, tend to have stringent loan eligibility requirements.
Larger financial institutions are highly regulated industries. Their goal is to reduce risk. Unfortunately, these financiers often view entrepreneurs, startups, and small business owners as risky investments. The application process for securing funding is more paperwork-intensive and slower, and there's a higher probability of denial than in nontraditional lending.
Many small businesses turn to crowdfunding platforms, peer lending, revenue-based financing, and modern fintech providers when traditional lenders turn them away. In a recent Small Business Credit Survey (SBCS), 37% of small businesses reported applying for alternative business loans, showing that these nontraditional channels, unbound by strict bank underwriting rules, can provide faster access to capital.
For instance, nonbank and alternative lenders, like Clarify Capital, provide working capital solutions geared toward your small business needs. As an alternative lending source, we have more say in what loan products we can offer and what's required for funding approval.
We also look at the full picture of your creditworthiness, and don't just stick to a rigid minimum credit score. Even owners with poor credit still qualify for fast working capital through our network.
This increased flexibility allows us to fulfill our mission of helping more businesses secure the financial resources they need — generally faster than the traditional loan program.
In this guide, we'll break down everything you need to know about alternative business loans — what they are, how they compare to traditional financing, who qualifies, and which types of funding might be right for your business. If you're looking for fast, flexible capital without the bank hassle, you're in the right place.
What Loans Are Available for Small Businesses?
We offer a variety of nontraditional small business financing options. That way, you can pick the type of financing that makes the most sense for your specific circumstances and business objectives.
Below are the top funding options for small businesses:
Alternative Business Term Loans. These are lump-sum loans that are repaid over time and are available in short-term and long-term formats. They offer flexible approvals, require no collateral, and are good for working capital or growth.
Equipment Loans. This financing is for new or used machinery, medical devices, or heavy equipment. The equipment itself serves as collateral, and personal assets stay protected. Bad credit is often acceptable.
Invoice Factoring. This option provides immediate funding by selling outstanding invoices to a third party. It helps businesses maintain cash flow while reducing the hassle of collecting payments, with no personal guarantee needed.
Business Line of Credit. This offers revolving access to funds up to a set limit, allowing you to borrow, repay, and borrow again as needed. Interest is charged only on funds used, making it a flexible cash flow tool.
Merchant Cash Advance (MCA). This provides upfront cash in exchange for a portion of future credit card sales. It offers fast access, no collateral, and is available to applicants with less-than-perfect credit.
SBA Loans. These are government-backed loans with favorable terms for expansion, equipment, or cash flow. Applications can be slow, but partners like Clarify Capital connect you to SBA-approved lenders and guide you through paperwork efficiently.
Here's a detailed breakdown of each type of loan, so you can understand how they work and determine which one might best fit your business needs.
1. Alternative Business Term Loans
Term loans, also called installment loans, are among the most popular alternative business loan types. They are what most people think of when referring to business loans.
Online lenders provide term loans structured similarly to what you expect at a large bank or credit union. You receive a lump sum of money, which is paid back in intervals over time. Interest is 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 repay owed funds. On average, term lengths are typically between six months and two years.
While traditional financiers often turn down small business owners seeking loans or microloans, we can approve a wider range of applicants. At Clarify, we don't require collateral and approve all types of credit.
Long-term loans have lengthier repayment terms, giving the borrower more time to repay debt. Long-term loans are difficult for small business owners to secure through a traditional bank.
Even businesses with relatively strong financials frequently run into the issue of denial. Despite the proven profitability of these companies, many don't meet the rigorous eligibility criteria set by larger financial institutions.
This can limit initial access to funds for several of the SMBs we work with down the line. Fortunately, we can approve many businesses that have been rejected for traditional bank loans, providing alternative capital solutions.
For long-term loans, being an established business with a solid track record of churning profit can increase your competitiveness as a prospective borrower.
2. Equipment Loans
Equipment loans, or commercial equipment loans, are a good option for companies that 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 that struggle to collect on-time payments from their customers. When receivables are delayed, it can create cash flow issues, especially for companies that experience periods of slim profit margins and have higher operating costs.
Companies pursuing invoice factoring usually desire quick access to funding and want to reduce the time spent getting squared away with customers. Businesses choosing 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
If you have a credit card, you're probably somewhat familiar with how a business line of credit works. The two are very similar in structure. Like applying for a consumer credit card, you submit an application to determine eligibility.
A business line of credit functions like a revolving credit account, allowing you to borrow, repay, and borrow again as needed to manage your cash flow. 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 nontraditional business line of credit is convenience. The credit line is there when needed and can be used for business-related expenses.
Funds can be drawn as needed, making it an excellent option for businesses wanting to protect themselves with a financial safeguard. For example, many borrowers use a credit line as a cash reserve. It allows businesses to plan for the unplanned.
When emergencies and unanticipated expenses happen, access to a credit line helps things run 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 in your bank account. Small businesses that finance with a merchant advance receive a lump sum of cash upfront 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 nontraditional business advance is that business owners can use it 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 accounts payable intact.
Applicants with less-than-stellar credit can be approved for this financing type. Similar to other popular alternative lending products we offer, there's no need for collateral.
Apply for Merchant Cash Advance
6. SBA Loans
Small Business Administration (SBA) loans are government-backed loans designed to help business owners access funding with favorable terms, like lower interest rates and longer repayment periods. They're ideal for expansion, equipment purchases, or managing cash flow.
However, applying for an SBA loan can be slow and complicated. The process involves extensive paperwork, strict eligibility requirements, and multiple layers of approval, which can take weeks or even months before funds are disbursed.
Working with a financial partner like Clarify can connect you faster to SBA-approved lenders and guide you through the application, handling much of the documentation and pre-qualification steps. This reduces delays and ensures you understand your options.
While you wait for SBA approval, Clarify can also offer alternative business funding to keep your operations moving.
Bank Loans vs. Alternative Loans
Thinking of whether to go with a traditional bank loan or an alternative lender?
Here's how they stack up side by side:
| Traditional Bank vs. Alternative Loans | ||
|---|---|---|
| Factor | Traditional bank loan | Alternative business loan |
| Credit score | Strong credit, 680–700+ | As low as 550, but it also factors in your overall financial profile |
| Documentation required | Extensive, including tax returns, financial statements, collateral, and personal guarantee | Minimal, only needing recent bank statements and basic business info, and often with no collateral |
| Approval time | Weeks to months | Fast, as early as 24 to 48 hours |
| Suitability | Good for large loans or long-term financing (expansion, real estate, large asset purchases), and terms can be long (years) | Best for small to mid-sized amounts, short- to mid-term needs (working capital, cash flow, inventory), and terms tend to be shorter than the traditional loan |
Simply put, each suits a different stage or size of business:
Bank loans. These are better for more established businesses with good credit and a proven financial track record.
Alternative loans. These are more suitable for businesses needing fast cash, flexible funding, or those with weaker credit or a shorter operating history.
