Best Alternative Lending Options
Alternative business lending provides funding from sources other than a traditional bank. Here’s how it works and where to get the financing you need.
| Lender | User rating | Best for | Amount | Term | Time in business | |
|---|---|---|---|---|---|---|
|
Short-term loans |
$5k – $400k |
Up to 24 months | 12 months | ||
|
Lines of credit |
$1k – $250k |
Up to 12 months | 12 months | ||
|
Equipment financing |
$5k – $5M |
12 – 84 months | None | ||
|
Bad credit |
$5k – $1.5M |
Up to 24 months | 6 months | ||
|
Startups | Up to $250k | 3 – 12 months | 3 months | ||
|
Fast funding |
$5k – $500k |
4 – 24 months | 6 months | ||
|
Merchant cash advances |
$2k – $2M |
2 – 24 months | 3 months | ||
|
Personal loans |
$2k – $50k |
24 – 60 months | Not required |
| Lender |
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|---|---|---|---|---|---|---|---|---|
| User rating | ||||||||
| Best for | Short-term loans | Lines of credit | Equipment financing | Bad credit | Startups | Fast funding | Merchant cash advances | Personal loans |
| Amount | $5k – $400k | $1k – $250k | $5k – $5M | $5k – $1.5M | Up to $250k | $5k – $500k | $2k – $2M | $2k – $50k |
| Term | Up to 24 months | Up to 12 months | 12 – 84 months | Up to 24 months | 3 – 12 months | 4 – 24 months | 2 – 24 months | 24 – 60 months |
| Time in business | 12 months | 12 months | None | 6 months | 3 months | 6 months | 3 months | Not required |
Alternative lenders at a glance
Best for: Short-term loan – OnDeck
- Starting rate (APR)
- 35.26%
Minimum APR offered to at least 5% of customers (not the lowest rate offered)
- Same-day funding available
- Prepayment and loyalty discounts
- Builds business credit history
- Not available in North Dakota
- Doesn’t fund all industries
- High interest rates
OnDeck is our top pick for a short-term loan because you can borrow relatively large amounts without needing an excellent credit score or lengthy business history. Plus, you get a discount if you repay the loan early. OnDeck also offers a business line of credit up to $200,000 if you need ongoing access to funds.
Note that OnDeck doesn’t fund all types of industries, such as art dealers, nonprofits and gambling businesses. Furthermore, rates can run high — with an average 56.1% for its term loan.
Read our OnDeck review.
Best for: Lines of credit – Bluevine
- Starting rate
- Not specified
- Flexible funds that can be used for various business purchases
- Quick funding options
- Accepts fair credit scores
- Same-day funding could incur a fee
- High annual revenue requirement
- Not available in Nevada, North Dakota or South Dakota
If your business needs occasional access to revolving funds, a Bluevine business line of credit could help. You can withdraw up to your credit limit as often as needed, only paying interest on the withdrawn amounts. Applications can be approved in as little as five minutes, with immediate access to funds if you have a Bluevine checking account. Otherwise, it typically takes one to three business days to receive funds.
Note that Bluevine is better suited for well-established businesses.
Read our Bluevine review.
To qualify, you’ll need to meet Bluevine’s criteria of:
- Minimum credit score: 625
- Minimum time in business: 12 months
- Minimum annual revenue: $120,000
Best for: Equipment financing – Taycor Financial
- Starting rate
- 8.00%
- Offers 100% financing with no down payment
- Ideal for startups and low credit borrowers
- No prepayment penalties
- Daily or weekly payments may be required for some products
- Must pay a documentation fee
- Stricter criteria for equipment refinancing
Taycor Financial offers up to 100% equipment financing with flexible repayment options, including monthly, quarterly or semi-annually. You can borrow up to $5,000,000 to cover essential equipment expenses like computers, printers, vehicles, restaurant appliances and more. Since the equipment acts as collateral to secure the debt, Taycor Financial could be a great option for startups or low-revenue companies.
In addition to equipment financing, Taycor Financial offers term loans, lines of credit, accounts receivable factoring, SBA loans and more.
Read our Taycor Financial review.
Best for: Bad credit – Fora Financial
- Starting rate
- 13.00%
Fora Financial’s minimum rate is a 1.13 factor rate. This means you’d repay 13.00%, plus any additional fees, on top of the amount borrowed.
- Low minimum credit score requirement
- Discount for paying off your loan early
- Quick funding
- Doesn’t help build business credit
- High revenue needed to qualify
- Factor rate makes it difficult to compare loan costs
Fora Financial is one of our top choices for a bad credit business loan since you only need a FICO Score of 570 to qualify. With funding available up to $1,500,000, you can tackle a range of business expenses like marketing, equipment, inventory, expansions and more.
While many lenders require businesses to operate for a minimum of 12 months, Fora Financial works with early-stage startups that have been in business for only 6 months or longer. However, the factor rate can make it difficult to compare against other offers.
Read our Fora Financial review.
Best for: Startups – Fundbox
- Starting rate
- 4.66%
12- to 52-week terms, or up to 104 weeks in certain limited situations
- Ideal for early-stage businesses
- Next-day financing available
- Available in all U.S. states and many territories
- Low credit limit compared to other lenders
- Only one product available
- Short repayment terms
If you’re looking for quick startup financing, Fundbox accepts early-stage companies after only 3 months of operation. You can access up to $250,000 whenever you need funds, only paying interest on withdrawn amounts. If approved, funds could hit your bank account as soon as the next business day.
However, Fundbox doesn’t lend to all industries, such as adult entertainment, online gaming and nonprofit organizations.
Read our Fundbox review.
Best for: Fast funding — National Funding
- Factor rate
- Starting at 1.11
- Funding in as soon as 24 hours
- Discount for repaying loan early
- No down payment required
- High annual revenue needed to qualify
- Factor rate makes it hard to compare against other lenders
- Relatively low loan amounts for equipment financing
If you’re faced with a financial emergency, National Funding offers quick business financing to help you get the cash your business needs within approximately 24 hours. You can get a term loan of up to $500,000 with repayment terms up to 24 months, or equipment financing and leasing up to $150,000 with terms up to 60 months — with no collateral required.
National Funding also offers a Guaranteed Lowest Payment program for equipment leases, which applies if you find a better rate with matching terms and conditions and without contingencies.
Read our National Funding review.
Best for: Merchant cash advances – Reliant Funding
- Factor rate
- Starting at 1.20
- Flexible eligibility requirements
- 24-hour funding available
- Origination fees waived for those with military affiliation
- Merchant cash advances can be more expensive than traditional business loans
- May require daily or weekly payments
- Website content can be misleading
With a merchant cash advance (MCA) from Reliant Funding , you could receive up to $2,000,000 in exchange for a portion of your future debit and credit card sales. Similar to other MCA lenders, Reliant Funding has lenient eligibility requirements, making it a feasible option for startups, low-revenue businesses or those with poor credit. That said, MCAs tend to cost more than other types of small business financing and are generally best used after you’ve exhausted other options.
Make sure your business budget can handle the short repayment term, which often requires daily or weekly payments.
Read our Reliant Funding review.
To qualify, you’ll need to meet Reliant Funding ’s criteria of:
- Minimum credit score:
- Minimum time in business: 3 months
- Minimum annual revenue: $48,000
Best for: Personal loans – Prosper
- APR
- 8.99% – 35.99%
- Allows you to apply with a co-applicant
- Quick funding
- Flexible eligibility requirements
- Technically not a business loan
- Charges an origination fee
- Interest rates can run high
Businesses that can’t qualify for a business loan may find it easier to obtain a personal loan for their funding needs. As a peer-to-peer (P2P) lender, Prosper provides up to $50,000 in personal loans by connecting borrowers with a range of investors. While you can use personal loans for business purposes, it’s important to track your expenses to ensure you’re ready to go when tax season rolls around.
P2P lenders typically have more lenient eligibility requirements, making them a great choice for early-stage startups or those with limited credit profiles. Just make sure your budget can handle the higher interest rates and added fees.
Read our Prosper review.
What is alternative lending?
Alternative business lending refers to small business financing offered by companies outside the traditional banking world. Often referred to as online or fintech lending, these lenders typically operate without brick-and-mortar branches.
Nonbank lenders might raise their own capital and lend to small businesses directly, or they may help connect borrowers with investors via a marketplace platform.
Since alternative lenders utilize the latest underwriting technology, eligibility requirements tend to be more lenient than with conventional banks.
Traditional banks vs. alternative lenders
Traditional banks and alternative lenders offer a range of financing options for small business owners. Here’s an overview of the key differences between traditional and alternative lenders.
| Traditional lending | Alternative lending | |
|---|---|---|
| Eligibility requirements | Stricter eligibility requirements, such as needing excellent credit (personal and business), high annual revenue and several years of successfully running your business. | More lenient requirements make it more accessible for recently established businesses or those with bad credit. |
| Loan amounts | Typically offers larger loan amounts. | Typically offers lower loan amounts |
| Time to funding | Can take anywhere from minutes to multiple weeks or even months to approve and process. | Approvals can take minutes, with funds delivered within the same day or up to three business days. |
| Loan products | Term loans, business lines of credit, working capital loans, equipment financing, commercial loans and Small Business Administration (SBA) loans. | Online lenders offer similar products, plus invoice factoring, peer-to-peer lending and merchant cash advances. |
| Support | Usually have brick-and-mortar branches for in-person support, coaching and networking opportunities. | May provide a dedicated loan advisor to help with business goals, but communications will typically be limited to phone, video and email. |
| Reputation | May have a more solid track record, as well as extensive protections and insurance in place. | Some alternative lenders offer predatory loans or unregulated financial products. Be sure to read reviews to pick a reputable lender before proceeding. |
| Interest rates | Tend to be lower | Tend to be higher |
Types of alternative lending for small businesses
Here are some types of small business loans to consider from an alternative lender.
Term loans are lump sum financing used for medium to large business expenses, such as purchasing new equipment or remodeling a building. Online lenders typically offer funding from $5,000 to $500,000 or more.
Interest rates vary, but once determined, your monthly payments should remain the same. You can choose between a short-term business loan (three to 24 months) or long-term business loan (five to 25 years), depending on your business’s level of need.
Although it won’t always come from an alternative source, a business line of credit offers access to revolving funds where you can borrow up to your credit limit as often as needed. Funds can be used for any business-related expense, and you pay interest only on what you withdraw, although some lenders charge monthly or annual maintenance fees. Credit limits can range from $1,000 to $250,000 or higher.
Equipment financing can fund assets such as manufacturing equipment, computers, vehicles or other large machinery needed for your business. Since the equipment typically acts as collateral to reduce lender risk, eligibility requirements tend to be more lenient. However, the lender can seize the equipment if you fail to repay the debt. Some lenders offer up to 100% or more in financing, with limits going up to $1 million and beyond.
A merchant cash advance (MCA) is an alternative form of business financing where you receive a cash advance in exchange for a percentage of your business’s future debit and credit card transactions. MCAs can typically provide between 50% to 250% of your monthly sales, depending on the lender and your qualifications. However, MCAs charge factor rates instead of traditional interest rates. Once converted, APRs can run in the triple digits, making MCAs a more costly way to borrow.
A business may sell its unpaid invoices to a factoring company in exchange for money up front, typically 80% to 95% of the total value of the invoices. In turn, the company collects money from the customer, taking a small fee before passing the remaining funds onto the business owner. Invoice factoring is often confused with invoice financing, which involves taking out a loan against the invoices.
With peer-to-peer (P2P) lending, borrowers are connected with individual or commercial investors via a marketplace lending platform. P2P financing usually only offers personal loans, which typically have more lenient eligibility requirements and fewer fees than traditional business loans. However, you will likely have fewer options, with loan amounts ranging from $2,000 to $50,000. There may be some state-imposed restrictions, as well.
You can apply for various small business grants through government agencies, corporations and nonprofit organizations. While small business grants tend to be competitive, it’s worth the effort of applying to get free money for your business.
You can raise donations from friends, family and the general public for specific projects or new product releases with a crowdfunding platform such as GoFundMe or Kickstarter. While it’s free for you to create and launch a campaign, crowdfunding platforms typically deduct a small fee from your donations to pay for their services.
If you need a small infusion of capital, a microloan can provide between Not specified to $50,000 with flexible eligibility requirements. Alternative lenders and the SBA both offer microloan options.
Bootstrapping your business involves using your own savings to fund your startup business, without the help of loans or outside investors. You’ll likely need a decent amount of savings to get started, but this method can be a smart choice if you’re worried about taking on new debt.
Pros and cons of alternative lending
Pros
-
Flexible eligibility requirements
Alternative lenders typically have lower credit score, revenue and time-in-business requirements than traditional lenders. -
Quick and easy application process
Since online lenders don’t require an in-person appointment at your local branch, the application process is typically speedy and convenient. -
Fast funding
Some alternative lenders offer same-day financing, while others typically process and fund your loan within one to three business days.
Cons
-
Higher interest rates
Alternative lenders typically charge high interest rates, especially if you have poor credit or can’t provide collateral. -
Lack of transparency
Some lenders don’t disclose the maximum interest rates and additional fees until you’ve completed the application process. -
Less flexible terms
You may need to make daily or weekly payments instead of a more traditional monthly repayment schedule.
Is alternative lending right for my business?
Alternative business funding became a more viable option after the 2008 financial crisis because many banks stopped offering small business loans. As a result, online lenders stepped forward to fill the gap, providing much-needed assistance to small business owners.
Although traditional financing usually offers more attractive rates, especially with SBA loans, the strict requirements exclude many small and new businesses.
You might want to consider alternative lending solutions if you:
- Have a reliable source of monthly revenue
- Have been running your business for at least six months
- Have a low or bad credit score
- Need access to immediate funds
- Were recently denied funding through a traditional bank
- Are capable of making weekly repayments
- Need a smaller loan amount
How to get an alternative business loan
Since alternative lenders operate solely online, most applications are relatively straightforward to complete. Here are the general steps to take when you’re ready to apply for an alternative small business loan:
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Decide how much you need
Create a budget to review your company’s current cash flow. From there, write up a list of your business’s most urgent and ongoing needs. Consider whether you need cash up front or on an as-needed basis. Make sure to avoid overborrowing — keeping up with schedule payments is essential for being able to borrow more down the road. -
Determine your eligibility
You can review general business loan requirements on each lender’s website. While eligibility criteria will vary by lender and loan type, most lenders will review your personal FICO Score and business credit score, time in business and annual revenue. And if you’re applying for a secured business loan, make sure you meet the collateral requirements. You can monitor your credit score for free with LendingTree Spring to see where you stand before applying. -
Research alternative business lenders
Some alternative lending products, such as business payday loans, aren’t regulated like traditional bank loans. Because of this, it’s worth reading small business lender reviews and watching out for signs of predatory lending, such as unclear terms, high interest rates or a long list of fees. -
Gather required documents
Although alternative lenders typically don’t require as much extensive paperwork as traditional lenders, you may need to supply some of the following documents:- A business plan
- Personal and business bank statements
- Personal and business tax returns
- Any applicable business licenses
- Collateral information, if required
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Submit your application
One of the best parts of working with an alternative lender is that the applications are typically quick, automated and 100% online. If more information is required, your lender will reach out to you. If you want to find the best offer, go ahead and submit applications to multiple lenders. You generally have a 14- to 45-day window to “rate shop” without any further impact to your credit.
How to compare alternative business loans
Here are some key factors to consider in order to pick the best alternative business loan for you.
Interest rate
Business loan interest rates will vary depending on the lender, loan type and your criteria. Some alternative lenders charge factor rates, which can increase the overall cost of borrowing. While variable rates may seem appealing, fixed rates can offer more predictability over the long run.
Additional fees
Some lenders charge extra fees, such as origination and late fees, as well as prepayment penalties. Read your business loan agreement before signing on the dotted line to ensure you understand the total costs involved.
Repayment term
Alternative loans typically have shorter repayment periods, which could put a strain on your business budget. Crunch the numbers in advance to make sure your budget can handle the repayment schedule.
Time to funding
Online business loans typically have a fast turnaround time, helping you access the funds you need within a few business days. However, if you’re able to wait, traditional funding sources such as SBA loans and bank business loans typically provide the most competitive rates and flexible terms.
Lender support
Finding an alternative lender that offers free business coaching and resources can help strengthen and improve your business model.
Frequently asked questions
Alternative lenders are private companies that provide various financial products to businesses of all sizes. They aim to create a quick, online application process with flexible eligibility criteria. In contrast, traditional banks typically have longer wait times with more stringent eligibility requirements and may require you to apply at a physical branch.
Nonbank funds come from the lender’s own capital, other investors or peer-to-peer funding. Since these nontraditional lenders loan to riskier businesses, they tend to have higher interest rates and shorter repayment terms.
Generally, alternative lenders are reputable, reliable and trustworthy, making them a solid choice for small business financing.
However, certain alternative lenders prey on those in desperate need of funds and participate in sketchy tactics, such as advertising loan products they don’t offer. Furthermore, they might list attractive interest rates on their websites, even while their actual rates are much higher. And there are scammers out there who will pose as lenders, often offering loans with terms that seem too good to be true.
Do your research to make sure you’re working with a legitimate lender and not a scam operation, and avoid falling for a subpar online lender by reading online reviews at the Better Business Bureau and Trustpilot. If in doubt, call the company’s customer service department to better understand its integrity and standards. And most importantly, read the fine print before agreeing to the loan’s terms and conditions.
Our methodology: How we chose the best alternative lenders
We reviewed more than 25 lenders to determine the overall best eight alternative business loans. We evaluated online lenders based on the following criteria:
- Minimum credit score: We focused on lenders that accept lower personal credit scores.
- Funding speed: Lenders on our list offer streamlined application processes with an average turnaround time of one to three business days.
- Rates and terms: We prioritize lenders with competitive fixed rates, fewer fees and flexible options for repayment terms.
- Repayment experience: We consider each lender’s reputation and overall business practices. We favor lenders that report to all major credit bureaus, offer reliable customer service and provide extra perks to customers, including free business coaching and resources.