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7 Types of Alternative Funding For Small Businesses

Updated: Mar 13, 2023

Whatever the reason, there are plenty of alternative business lending options out there for those who know how to find them:

  • Microfinance loans

  • Business cash advances

  • Invoice factoring

  • Working capital loans

  • Business lines of credit

  • Purchase Order Financing.

  • Peer-to-Peer (P2P) Lending

Let's go over some options that every business owner should be aware of since different options have different advantages.

1. Microfinancing

Microfinancing provides funding to small businesses in need on a smaller scale than a conventional bank loan does. They frequently have a quicker approval process and a flexible repayment term, making them perfect for small businesses and startups.

Compared to traditional banking, it's a simple way to get fast funding, but there are some cons. Since microloans are smaller, they are not suitable for major purchases or extensive business changes.

They are also subject to many of the same requirements as bigger loans, so companies with bad credit, erratic revenue, or no collateral may still find it difficult to get the funding they require.

2. Merchant Cash Advances

Owners can sell the purchase of future receivables to business financing firms using this alternative business financing strategy. In essence, the company accepts a cash advance in exchange for a percentage of future sales.

Financers typically base approval on the strength of the business rather than their personal credit score because they receive money from the sales of the company they work for.

3. Invoice factoring

By working with a lender to pay a portion of unpaid invoices, invoice factoring enables businesses to maintain their cash flow even when their vendors are unable to pay.

Other options within this category include invoice financing, which allows business owners to borrow money against unpaid invoices, and invoice discounting, which allows the company to pay only a portion of an invoice up front and then repay the full amount (including interest) at a later date.

If unpaid invoices are a concern, each of these options provides a practical way to handle them, making them a great alternative to small business loans.

4. Working Capital Loans

Avoiding loans altogether doesn't mean that you can't find alternative financing for your small business. Working capital loans are an unconventional means of obtaining quick financing. These loans are used to pay for ongoing operational costs.

Working capital loans can provide much-needed flexibility for small businesses during times of slow cash flow. For instance, companies that sell seasonal goods may profit from a working capital loan during the slow season.

5. Business Line of Credit

Utilizing particular lines of credit for business purposes is a typical alternative lending strategy for small businesses. When compared to business credit cards, business lines of credit typically have higher limits and lower interest rates, making them a better option for companies that require budget flexibility for things like growth initiatives, small business marketing, etc.

Naturally, despite having such enticing terms, business lines of credit can be challenging to obtain. To find credit options that suit your needs, your lender will go over your options with you, including putting down assets as collateral.

6. Purchase Order Financing

Businesses and organizations that lack the funds to purchase the inventory required to fill orders can benefit greatly from purchase order (PO) financing.

With this type of financing, your supplier will be paid by the PO financing NBFC to manufacture and deliver the goods to the customer. Following direct payment from the customer, the purchase order financing NBFC deducts its fees before sending you your profits.

PO financing can be an easy way to avoid having to turn away customers for young businesses that get several orders at once but don't yet have the cash flow to buy the required inventory.

7. Peer-to-Peer (P2P) Lending

Through online marketplaces and platforms, P2P lending connects small business owners with investors who have extra cash.

Both borrowers and lenders are free to negotiate their own terms because there is no regulated financial institution involved.

Borrowers might have fewer protections when working with a professional lender, despite the fact that this can result in more attractive lending arrangements.

Non-Traditional Funding Sources That Fit Your Needs

Finding one that matches your business model and requirements is essential now that you are aware of a few non-traditional financing options.

Here are a few things you should consider:

Understand all of your alternative financing options.

You’ve been looking for financing options to fund your next big step, and you know you need something more than a traditional bank loan or funding.

Alternative financing may be the right choice for you.

Look around to find options that suit your needs. In addition to the financing types we talked about above, there are methods like Revenue-based financing, Subscription-based financing, and more.

The main takeaway is to know your options before you commit to anything.

At Debtworks, we find the time to walk you through the options that fit your business needs and goals.

You can let us do the hard work.

Our financing specialists can assist in creating the ideal financing plan for your requirements. Write to us at

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