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Bank Said No. Alternative Funding For Your Business

Seeking Capital but a Traditional Bank Loan Isn’t Right for Your Business? Read on to Learn about Your Financing Options.

Angel Investment

What it is: Business angels are investors, usually individuals, willing to provide entrepreneurs with investments ranging from $5,000 to $2 million. Angel investments are usually in exchange for convertible debt or ownership equity.

Whom it is best for: Startup entrepreneurs looking to move their ideas or small businesses to the next phase. These entrepreneurs may also receive the guidance of the angel or angel group that has invested in their business.

Asset-Based Lending

What it is: Borrowing based on current assets, such as accounts receivable or inventory. With an asset-based revolving loan agreement, the lender obligates itself to loan the borrower an amount that equals a percentage of the outstanding eligible merchandise inventory or receivables. Usually the borrower obtains a greater financial leverage than with traditional loans. In effect, the borrower has a credit line equal to its loan availability, which can be calculated on a daily basis by the lender and  represents the maximum amount that can be borrowed on the date of calculation. The borrower automatically reduces the loan balance daily by the incoming receipts. Thus, this type of financing can minimize loan balances while providing flexible borrowing capability. Asset-based lending should not be confused with factoring though. The major difference is that under an asset-based lending arrangement, the lender takes a security interest in the receivables or inventory and the borrower retains the credit and collection risk.

Whom it is best for: Fast-growing companies with capital needs that do not yet meet traditional bank criteria. Historically, asset-based lenders have made loans of $1 million or more only; however, some companies are now offering this type of loan for amounts as low as $200,000.

What it is: Simply swapping your product or service for a vendor’s product or service.
For a wider selection of products or services, businesses can join barter networks. By paying a membership and transaction fee, the business can exchange goods and services with fellow members. Each time you sell your product to a member, you receive trade dollars that your company can use to buy from other network participants. In addition to the up-front fee, there are charges for each transaction.

Whom it is best for: Small-business owners who are looking to hold on to cash while securing the goods and services they need.

Credit Cards

What it is: Once seen as a convenient and secure way to replace office petty cash, business credit cards are now proving to have greater benefits with more vendors accepting credit cards and more rewards card programs, such as cash back and gift cards, according to Debi Enders, assistant vice president of small-business banking at Commerce Bank.

Whom it is best for: Business owners looking for help with short-term cash flow use business cards for monthly bills, like phone and utilities, and may also choose to use a credit card to finance a large purchase over the course of several months, revolving a monthly balance by making minimum payments, according to Enders. “Business owners can empower employees to make purchases on behalf of the business and can set a unique spending limit for each of them,” she says. “The growth and evolution of business card programs have led to the introduction of more unique controls as well, with some offering the ability to restrict purchases based on merchant categories and to manage those settings and card limits online.”


What it is: The sale of a creditworthy receivable generated by a business owner to a third person (factor) for the express purpose of getting most of the invoice money immediately.  There are no restrictions for the use of this money. The receivable can be sold to a factor as soon as it is generated by the company. Most business owners use the working capital from factoring to pay payroll and payroll taxes on time, replenish inventory, get vendor discounts, and pay job insurance. Business owners also use factoring money to develop a new idea or promote new products. They can now finish contracts and go after new ones with the assurance that they will have the money to finish the job on time. Factoring assures their customer that the job is financially backed to succeed. Since the business owner has the money to pay accounts on time, his or her credit score is improved and traditional funding will be easier to obtain in the future. Factoring invoices can give the company its own “credit line.”  

Whom is it best for: Factoring is great for firms that might not be able to obtain traditional financing at this time. They may be newly established and not have the collateral or the credit scores that are required for loans. Factoring can also help businesses with seasonal demands such as staffing, lawn maintenance and security firms. Factoring gives companies the working capital to payroll frequently.


What it is: Microloans range in size from a few hundred dollars to $50,000, with an average loan size of $12,000, and the funds may be used for a variety of business-related purposes, such as acquiring equipment or merchandise, according to Galen Gondolfi, senior loan counselor and chief communication officer at Justine Petersen, a regional microlender. “Rates are typically higher than mainstream lenders, and the maximum amortization is 60 months; there is no prepayment penalty,” he says.

Whom it is best for: Startup, home-based and existing small businesses seeking access to safe and affordable capital when a mainstream financial institution, such as a bank or credit union, is not in a position to provide funding. “Coupled with the goal of access to capital is the notion of building credentials, most specifically a business owner’s personal credit score,” Gondolfi says. “Microloans are reported to credit bureaus, so each payment can ultimately build a business owner’s personal credit score, allowing the opportunity for the microloan to be refinanced with a mainstream lender or allowing the opportunity for the business owner to actually borrow directly from a mainstream lender.”

Self-Reliance, Friends and Family

What it is: A personal investment from yourself, your family or your friends. Self-reliant funds often come in the form of credit cards and a second mortgage on your home. Family and friends can provide direct loan funding, help aspiring business owners secure cash as cosigners on loans or offer their property as collateral for loans.

Whom it is best for: For some business owners, especially startup entrepreneurs, using their own money or that of friends or family is the only option available.

Before enlisting the aid of outsiders, decide how much money you can personally invest. Not only will your investment reduce the amount you will eventually have to repay but it could also help you secure funds from other sources. By investing your own money in the company, you show potential investors and creditors that you believe in your business.

Venture Capital

What it is: Substantial capital in the form of an equity investment that may be earned by established early-stage firms with high potential. Venture capital firms are interested in investing at least $1 million.

Whom it is best for: The ideal business is one with a proven management team that knows how to operate a high-growth business successfully paired with a great idea, a defensible position (intellectual property, unique service offering, benefit to scale, etc.) and a market that has a problem it needs solved. Often, venture capital firms are looking for companies that are going public or going to be acquired within about a five-year period.  

Venture firms, for the most part, are not interested in seed or startup companies.

Submitted 10 years 173 days ago
Categories: categoryFinding Capital
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