Alternative Funding Options for Small Businesses:

It can take years of hard work and dedication before you reach your profit goals in business and that’s if you make it past the crucial survival period. Young graduates dreaming of their future and small businesses alike are the most vulnerable to macroeconomic threats. Unforeseen events like the one caused by COVID-19 around the globe can shatter your business dream in a matter of days. Small businesses in particular find it hard to survive during a recession. When sales dry up and business expenses continue to mount it becomes even more challenging to survive. All business entities small or big alike look for funding options, from bank debts, equity shares, securities, and investments. Bank borrowings, Stock market listings, and corporate investments make life easier for big firms. For small businesses that are in startup mode or need funds for growth and expansion it becomes an uphill task to find cash resources. We’ll discuss some of the alternative funding options for small businesses that are unable to secure any bank loans.

Government Grants:

Seek immediate relief from Federal, state and local government relief funds and grants, the SBA offered help to small business owners with PPP and EIDL programs. Apart from these disaster response relief funds, the government bodies offer valuable grant programs for research and development. Find out your matching research and development program grants as an immediate cash relief.

Friends and Family:

Oftentimes this option may not be plausible if you are a 1st generation entrepreneur or rail from very humble beginnings with strained resources. However if you do have relatives or friends willing and able to fund your venture there are some ways to make the arrangement more formalized so both parties feel secure for any future mishaps. Some online specialists such as can arrange for the formalities for you for a nominal fee. 

Retirement Funds:

Small business owners can tap into their retirement funds by either borrowing against the 401(k) or equivalent or making a withdrawal. Be sure to understand the federal tax implication of these options.  

Peer to Peer Lending:

This alternative funding option is gaining popularity recently. If you cannot find any bank loans or government grants, the peer-to-peer or P2P lending networks can offer you immediate cash relief. The arrangements are made through a third party service provider, who enables the formal communication between a lender and the borrower.

Business Angels:

A very similar alternative option that large businesses often use. Venture capitalists seek investments in a well-established business that guarantees a good return. Business Angels are wealthy individuals who fund small businesses and entrepreneurs with their business needs. This option often takes the form of an equity investment. 

Private Equity Firms:

If your business has grown large enough to fund the costs of listing on a Stock market such as NYSE or NASDAQ, you are good to go for an IPO. For small businesses that’s usually not a viable option. An alternative approach to that is finding a private equity firm that can invest in your small business. Another similar option and an alternative to the expensive IPO or listing is to go for the over-the-counter (OTC) markets. Share offerings on the OTC markets are a cheaper option than the stock market listing, however, this option too involves upfront costs.

Sale and Leaseback:

This option is feasible for stable businesses. Over the years businesses create valuable assets. The sale and leaseback option allows selling a fixed asset and then leasing it back from the buyer. The business can continue to use the fixed asset such as land or building property and also can have a large sum of cash upfront. The option, however, would mean capital gains loss in the long term.

Financing with a HELOC:

You can fund your business needs with a personal loan option such as a Home Equity Line of Credit. This is a viable option for you even if you already have a personal loan. The market value of your home increases over time and you can apply for another personal loan or refinancing up to 80% of your home value. Using a personal loan to fund the business operations requires considerable caution as failure to repay the loans can even result in a seizure of house property.

Small businesses often find it hard to secure bank loans without any assets as collateral. Some bank loan alternatives like revolving credit facility (RCF) or refinancing a short-term loan with a long-term can also be considered. Personal loans, private equity firms, and peer-to-peer lending are the best alternative options for small businesses. State and federal support and grant programs can also provide valuable support to small businesses in hard times.

Are you on track with your financial goals? Schedule your Strategy Session Today: