alternative financing

Sources of Alternative Financing for Small Businesses

As the economy reopens and the pandemic slowly attenuates, small businesses that were unable to tap the PPP program may need to consider alternative sources of financing. For businesses that may not qualify for traditional bank loans, there are alternative funding options.

And those that are already struggling to pay their debts should consult with an experienced debt relief specialist. In the meantime, let’s take a look at some of the alternative sources of financing for small businesses. 

Alternative Funding

Technological advances and financial innovation have had a significant impact on small business financing, and some common sources of alternative funding include: 

  • Business credit cards
  • Crowdfunding
  • Invoice financing
  • Merchant cash advances 

These are potentially pivotal sources for alternative financing to help small businesses navigate the new normal, and each comes with both benefits and risks. 

Business Credit Cards

Business credit cards are issued under the business’s name and are to be used solely for business purposes. Approval typically depends on the business owner’s personal credit and finances. In short, having a business credit card can help:

  • Build business credit
  • Separate personal and business expense
  • Provide quick access to cash

Business credit cards come with high-interest rates and fees, however, which means additional charges will quickly add up if you fail to make all your payments on time. Also, missing a payment could affect your personal credit. 


Crowdfunding is a method of raising funds from backers who contribute through an online platform, and there are 3 types: 

  • Reward crowdfundingOffers backers rewards, such as exclusive experiences, or an early version of a product or service.
  • Debt crowdfunding — Allows the funder to loan a portion of the funds and earn interest on the debt repayments.
  • Equity crowdfunding — Gives supporters investment opportunities in exchange for equity or potential future returns. 

While crowdfunding can help build brand awareness and generate publicity for your business, it may require a significant marketing effort to run an effective funding campaign.

Invoice Financing

Invoice financing involves selling your unpaid invoices to a factor in return for a percentage of the payment due in advance. After the customer pays the invoice in full, you then pay the funder according to your agreement and receive the balance of any funds owed to the business. Though invoice financing can provide quick access to cash instead of waiting until invoices are paid, it comes with relatively high rates and fees. 

Merchant Cash Advances 

A merchant cash advance (MCA) is a lump sum that is paid in advance and repaid (plus fees) on a regular basis based on a percentage of the business’s daily credit card and debit card sales. 

This type of alternative funding can be easy to obtain since the business owner’s credit rating is not a key factor. Instead, the MCA provider looks to the business past and projected sales. 

MCAs come with high rates and fees and onerous payment terms, however, making them an expensive financing option. Moreover, in the event of default, both the business and personal assets may be at risk. 

The Bottom Line

If you are considering alternative sources of funding, it is wise to shop around for a product that best suits your needs with the best rates and terms. And if you are struggling with debt or at risk of defaulting on payment obligation, which is common with merchant cash advances, talk to an experienced debt relief specialist