Can't Get Business Loan? 5 Alternative Options

If banks have turned you down for a business loan, you’re not alone. Only 18.8% of small business loans were approved by small banks as of mid-2023, and large banks approved just 13.4%. Whether it’s due to low credit scores, lack of collateral, or overwhelming paperwork, many small businesses struggle to secure funding through conventional methods. But don’t worry - there are other ways to get the capital you need. Here are five alternatives:

• Crowdfunding: Raise money directly from supporters online. Options include reward-based campaigns (like pre-selling products) or equity crowdfunding (selling shares). Funding can take weeks but offers flexibility.
• Peer-to-Peer Lending: Borrow directly from individual investors via online platforms. Loans are typically approved faster, with less strict requirements than banks.
• Invoice Financing: Convert unpaid invoices into immediate cash. Quick access to funds, but fees can add up.
• Microloans: Small loans (up to $50,000) designed for startups or underserved businesses. Easier to qualify for but may come with higher interest rates.
• Angel Investors: Gain funding in exchange for equity. Ideal for high-growth startups, but you’ll give up some ownership.

Each option has its pros and cons, depending on how much money you need, how fast you need it, and your business’s situation.

Quick Comparison

If you’re struggling to get a loan, these alternatives can help you secure funding without relying on banks. Choose the option that aligns with your goals and financial needs.

Top 4 Bank Alternatives for Business Funding

1. Crowdfunding

Crowdfunding can be a lifeline for businesses that can’t secure traditional loans. Instead of turning to banks, it allows you to raise money directly from online supporters. By 2025, crowdfunding for small businesses is expected to surpass $2.4 billion globally.

There are two primary types of crowdfunding to explore. Reward-based crowdfunding is like a pre-sale: supporters contribute money in exchange for early access to your product or exclusive perks. A great example of this is Pebble’s smartwatch campaign, which raised over $10 million on Kickstarter. On the other hand, equity crowdfunding involves selling shares in your business to investors.

Eligibility Requirements

If you’re considering equity crowdfunding under Regulation Crowdfunding (Reg CF), your business must meet specific SEC guidelines. U.S.-based companies are eligible, but those without a clear business plan, investment firms, or companies with prior securities violations are excluded.

The financial documents you’ll need depend on how much you’re trying to raise:

You’ll also need to file Form C with the SEC and use an SEC-registered intermediary platform. Before you dive in, make sure to plan your campaign timeline carefully.

Funding Speed

Crowdfunding isn’t instant - it takes time. From approval to launch, it can take several days to weeks. Once live, campaigns typically run for 30 to 40 days, striking a balance between building momentum and creating urgency. While some campaigns hit their goals in hours, others may take months.

Here’s an interesting insight: 42% of funds are raised in the first and last three days of a campaign. Campaigns that hit 30% of their goal within the first week are far more likely to succeed. After a successful campaign, expect legal paperwork and fund transfers to take up to four weeks. These timelines often influence how much funding campaigns can realistically achieve.

Typical Funding Amounts

Under Regulation Crowdfunding, businesses can raise up to $5 million in a 12-month period. This cap is much lower than Regulation A, which allows up to $75 million. For reward-based crowdfunding, there’s no legal limit, but your success depends entirely on how much demand there is for your product.

Potential Risks

Crowdfunding isn’t without its challenges. If you don’t meet your funding goal, the contributions are returned to supporters, which can damage your reputation.

Another concern is the public nature of crowdfunding campaigns. Without proper patent or copyright protections, your idea could be copied by competitors. Poorly managing reward fulfillment might also lead to giving away more than you intended.

Preparing for a campaign takes time and money, and even with regulations in place, fraud is still a possibility. External factors, like economic downturns, can also impact your campaign’s success. For startups, limited resources can make it harder to protect intellectual property.

Lastly, startups relying on crowdfunding often face higher failure rates compared to established businesses pursuing traditional funding.

2. Peer-to-Peer Lending

Peer-to-peer (P2P) lending connects borrowers directly with individual investors, cutting out traditional banks. In 2023, the U.S. P2P lending market was valued at $26.3 billion and is projected to skyrocket to $270.4 billion by 2033. This rapid growth highlights how businesses increasingly turn to P2P platforms when traditional lenders decline their applications.

P2P lending offers loans with fixed terms and regular payments, giving borrowers access to competitive rates without needing to sell equity or offer rewards. It provides a clear repayment structure while maintaining flexibility.

Eligibility Requirements

P2P lending platforms generally have less stringent eligibility criteria compared to traditional bank loans. However, each platform sets its own specific requirements.

In February 2025, NerdWallet outlined the qualification criteria for two major P2P platforms:

Prosper requires a minimum credit score of 660, although the average borrower has a score of 709. Borrowers must earn at least $15,000 annually, but the average income is $137,000. The debt-to-income ratio cannot exceed 50% (excluding mortgages), with the average borrower at 41.05%, including mortgage debt.

LendingClub is more lenient on credit scores, accepting borrowers with scores as low as 600, though the average borrower scores above 700. While there's no set minimum income, proof of income is mandatory, with the average borrower earning $100,000 annually. Borrowers also need a debt-to-income ratio below 40% and at least 36 months of credit history with two active accounts.

In addition to these financial criteria, borrowers typically need to provide identity verification, proof of income, address documentation, and a valid bank account for loan disbursement and repayment. Some platforms may also ask for the purpose of the loan.

Funding Speed

One of the standout features of P2P lending is how quickly funds can be accessed. These platforms leverage online technology to streamline the application and approval process, offering a much faster turnaround than traditional banks. While conventional lending may take weeks or even months for approval, many P2P platforms can approve loans in just days.

Businesses benefit from quicker decisions, often receiving funds within days instead of waiting for weeks.

Compared with other financial services providers, there is a high degree of automation in approving loans and matching proposals to specific investors. This means that borrowers can often be funded quickly, or even the next day. - Backd Business Finance

3. Invoice Financing

Invoice financing is a way to turn unpaid invoices into quick cash - up to 90% of the invoice value can be available within 24 hours. Here’s how it works: you submit your outstanding invoices to a financing company, which advances most of the invoice amount upfront. Once your customer pays their invoice, the financing company deducts its fee and sends you the remaining balance.

Eligibility Requirements

Unlike traditional loans that rely heavily on your credit score, invoice financing focuses on the creditworthiness of your customers. To qualify, your business should have a track record of issuing invoices to reliable business customers. Ideally, these customers pay their invoices within 30 to 90 days, and your services should cater to other businesses, not individual consumers.

Lenders often require that your business operates as a formal entity (like an Inc. or LLC) with profit margins above 10% and invoices that are free of prior claims. Your business should not be under bankruptcy protection, and you’ll need to show a clean record of personal character. Lenders will also evaluate your financial health, cash flow, and request supporting documentation like detailed sales ledgers and financial statements. Once you meet these criteria, the funding process moves quickly.

Funding Speed

Once approved, you can typically access funds within 24 hours. For ongoing arrangements, new invoices are advanced at 80%–95% of their value.

Potential Risks

While invoice financing can boost cash flow, it’s not without risks. High factoring fees - ranging from 1% to 5% per month - can add up quickly. Aggressive collection practices by the financing company might strain relationships with your customers. Additionally, some agreements may include hidden fees or restrictive terms. Sharing sensitive business data and taking on liability in recourse arrangements can also pose challenges.

Over-relying on invoice financing might even mask deeper issues with profitability or sales. According to a U.S. Bank study, managing cash flow is critical - 82% of business failures are tied to cash flow problems. The study also found that 55% of U.S. invoices are paid late, only 36% are paid on time, and 9% end up being written off.

Before diving into invoice financing, weigh its costs against other funding options and carefully review all terms. Consulting a financial professional can help ensure this approach fits your business’s long-term goals.

4. Microloans

Microloans are designed to provide funding of up to $50,000 for early-stage businesses and entrepreneurs who may not qualify for traditional loans. The Small Business Administration (SBA) sets the maximum loan amount at $50,000, with the average microloan totaling about $16,124 in FY2024. In FY23 alone, microloans amounted to $87 million, supporting over 5,500 small businesses.

Eligibility Requirements

Microloan eligibility is generally more lenient than traditional loans, but specific criteria vary by lender. Common requirements include offering collateral or a personal guarantee and undergoing a review of credit score, financial history, business location, and operational history. SBA microloans are available to for-profit small businesses and some nonprofit childcare centers. Before applying, it’s wise to check your credit report for errors.

For instance, Pursuit Lending in New York requires a credit score of at least 640, while Ascendus may consider applicants with scores as low as 575. This flexibility allows more entrepreneurs to access funding.

Typical Loan Amounts

The SBA microloan program sets a maximum loan amount of $50,000. While historically the average loan was about $13,000, recent figures show averages of $16,557 in FY2021 and $16,124 in FY2024. For loans exceeding $20,000, lenders typically require that borrowers have no access to traditional credit. Additionally, borrowers cannot owe more than $50,000 to an intermediary. In FY2021, intermediaries issued 4,510 microloans totaling $74.6 million.

Funding Speed

Although microloans are easier to qualify for than traditional bank loans, the approval process can take longer than other financing options. This delay is often due to the extensive documentation and review required during the application process.

Potential Risks

Microloans, while accessible, come with their own challenges. They often carry higher interest rates and fees, and the smaller loan amounts may lead borrowers to take out multiple loans. Additionally, some lenders may employ aggressive collection practices, and the loans are subject to less regulatory oversight. This can increase risks such as over-indebtedness, particularly if a business struggles to perform or takes on multiple loans.

Default rates can also be a concern. For example, Kiva’s direct loans in the U.S. have a repayment rate of 72.8%. One U.S. microcredit program reported annual administrative costs exceeding the value of its portfolio, with loan losses reaching as high as 60%.

To reduce these risks, it’s crucial to thoroughly research lenders, create a solid business plan, improve financial literacy, and closely track your business performance. As Kiva emphasizes:

While we do everything possible to support successful repayments, all loans carry some level of risk.

5. Angel Investors

Angel investors offer funding to startups in exchange for equity, meaning they profit when your business grows or is sold. In 2020, the median deal size for angel investments was $1.2 million, with total annual investments reaching $20 billion.

Beyond funding, angel investors often bring invaluable industry knowledge, mentorship, and connections that can help your business grow faster. They usually prefer to invest in industries or businesses they are familiar with or have experience in.

Eligibility Requirements

Angel investors are drawn to startups with strong growth potential. Your business should show the ability to generate significant revenue and earnings growth within 3–7 years. This makes angel investment particularly appealing to technology companies, innovative products, or businesses poised to disrupt current markets.

To attract angel investors, you'll need to present a well-thought-out business plan, complete with financial statements, a persuasive pitch deck, and detailed financial projections. A clear exit strategy is also essential - investors want to know how they’ll eventually see returns, whether through an acquisition or a public offering. It’s also wise to target investor groups that align with your industry, product, or business stage.

Once investors are confident in your startup's potential, funding decisions are often made quickly.

Funding Speed

One of the major advantages of angel funding is its speed. Decisions are typically made swiftly, and funds are often provided directly by a single group of decision-makers - without the repayment obligations tied to traditional loans. This quick access to capital can be crucial for businesses needing to hire staff or purchase equipment to get rolling.

As entrepreneur Bianca Manuela Dorta Darias shared:

"In no time, I had several offers from investors and was able to choose the one that suited me best. It was surprisingly easy and fast - I'm very happy with the result, absolutely recommend it!"

• Bianca Manuela Dorta Darias

However, even with the speed of angel funding, it’s critical to carefully vet potential investors. Ask for references and, if possible, speak with other founders they’ve worked with to ensure their goals align with yours.

Potential Risks

Angel investment isn’t without its risks. A major concern is equity dilution, which reduces your ownership and decision-making power. Other risks include potential conflicts of interest if investors have a different vision for the company, mismatched growth expectations, due diligence or fraud risks, and challenges with liquidity if you need to sell your remaining equity.

To minimize these risks, research an investor’s background and track record thoroughly, establish clear terms in your investment agreements, and maintain open communication through consistent updates. Building a network of trusted advisors can also provide valuable guidance when navigating these challenges.

Funding Options Comparison

As mentioned earlier, each funding option comes with its own set of advantages and drawbacks. The best choice depends on your specific needs, cash flow, and growth objectives. Different options have varying eligibility requirements, funding limits, and processing speeds.

Here’s a side-by-side comparison to help you evaluate your options:

When choosing a funding source, consider your business stage, urgency, and the amount you need. For instance, nearly 60% of small businesses seek loans under $100,000, making microloans and peer-to-peer lending appealing options for many.

Traditional bank loans often take months to process, while online lenders can deliver decisions in as little as 24 hours.

The main goal of a microloan is to help a small entrepreneur who may not have access to traditional funding and would not otherwise be able to borrow money. - US Chamber of Commerce

Before committing, weigh factors like interest rates, fees, speed, and the long-term impact on your business.

Conclusion

Getting a "no" on a loan application doesn’t mean the end of the road for securing business funding. The five options we've explored - crowdfunding, peer-to-peer lending, invoice financing, microloans, and angel investors - each bring their own strengths, depending on your business's unique needs.

The key is to align the funding method with your specific goals. There's no universal solution here; your financial situation and business vision will guide you to the right choice.

Start by assessing your funding needs. How much do you need, and what are you willing to trade for it? If keeping full control of your business is a priority, debt financing with regular repayments might be the way to go. If you're aiming for fast growth and can share ownership, equity financing could be a better fit.

"Knowing the advantages and disadvantages of financing options is a good start. However, choosing the right funding also depends on understanding your business's current situation, future goals, and cash flow." - Sarah Williams, Vice President of Sales at Viva Capital

When deciding, consider the essentials: your credit score, available collateral, interest rates, cash flow patterns, and the overall cost of financing. These factors will help you negotiate better terms and find the funding that fits your operational goals. For example, crowdfunding can double as market validation, while invoice financing provides quick access to cash when you need it most.

It's also important to think long-term. Align your funding choice with your broader business objectives to avoid unnecessary financial strain or wasted resources. Building your credit early can also open doors to better funding opportunities down the line.

Finally, keep in mind that broader economic conditions and changing regulations can influence credit availability and lending practices. Staying informed and adaptable will help you navigate these challenges effectively.