How Small Businesses Find Working Capital Outside of Banks


Jeffrey Bumbales

As a small business owner, it’s up to you to determine your working capital needs. Do you run a business where cash flow varies seasonally?

Do you need to meet payroll, acquire inventory, or upgrade your POS software to keep up with evolving regulations?

Once you identify your need for more capital, the next step is finding the best funding sources. If you’ve tried to borrow money from your bank and were turned down, you’re in the majority – as of July 2014, only about one in five small business loans were approved by big banks.

The good news is there are many other sources of small business capital to turn to.

Small Businesses Can Seek Alternative Funding

One of the largest growing industries today is the “alternative lending” sector. These tend to focus almost exclusively on small and medium-sized businesses. Many offer Merchant Cash Advances, where you’re advanced a lump sum and pay it back via a daily percentage of your credit card sales.

A few even offer a business loan, where you’re loaned a lump sum and pay back a fixed dollar amount. The Business Loan tends to be more competitively priced, whereas the Merchant Cash Advance may be more flexible. It all depends on your business.

Either way, both of these options tend to be more accessible than a government program or crowd-funded project. Credibly offers both options in order to cater to small and medium-sized businesses of all different sizes and credit profiles.

There Are Government Programs Specifically For SMBs

There is always the possibility of getting a loan, or even a grant, through a federal, state or local government program. Every state has a small business lending fund that offers loans to qualified small businesses.

For these though, keep in mind that all loans are state and lender-specific. Check with your state’s small business lending fund to find out if you qualify, how much money you can borrow, and the terms of repayment.

Another resource may be found by contacting an economic development agency. Each state has a central economic development agency and you can also find help through a more regional economic development that specifically serves businesses in your area of the state.

Small businesses in need of funding may also qualify through one of the SBA (Small Business Administration) loan programs. The SBA does not actually provide the loans. Instead, they guarantee a substantial portion of a loan made through a bank or other participating lender in the SBA loan program. There are certain eligibility rules, such as meeting the SBA’s definition of small business and using the funds for a reasonable business purpose.

Crowd Funding is an Option to Consider

Thanks to the Internet and the widespread use of social networking, a relatively new option of funding has become available for both start-ups and small businesses that are already up and running. There are numerous crowdfunding sites where you can create a page telling your story and request help raising or borrowing the money you need to help your business grow.

Determining which of these sites is best for you depends on the type of business you run. Many crowdfunding sites allow you to present your project, and the amount of money you are attempting to raise, to the community.

Some of the sites only allow you to withdraw your funds once your fundraising goal has been achieved. Others will allow you to take out any amount of money you raise through those sites often tend to have higher fees.

Most crowdfunding sites say you should offer incentives to those donating to your cause – incentives can range from a personal “thank you” all the way to shares of stock in your new company should you be successfully funded.

A Few More Ways to Raise Working Capital

  • Take out a home equity loan
  • Sell a car or other valuable assets you may own
  • Take a cash advance on a credit card
  • Ask for a loan from a family member or friend
  • Factoring – sell your accounts receivable

At times it may seem impossible to find a suitable way to raise the working capital you need to operate and grow your small business.

To find you the right-sized small business loan Credibly combines a proprietary scoring algorithm and human underwrite to come up with an affordable funding option that best fits your business needs. Click here to pre-qualify in less time than it takes to drive to your local bank.