11 Alternatives to SBA Loans

Last Updated December 16, 2024

Loans from the Small Business Administration (SBA) can feel like your golden ticket to profitability. SBA loan terms are favorable and also offer competitive interest rates. However, SBA loans are notoriously difficult to qualify for, especially if you have bad credit.

Your business might be too small to qualify, or you might not have enough collateral to get the loan. Being turned down by the SBA can be disheartening, but you have other options.

Alternative lending options like invoice factoring and even crowdfunding can help your business make ends meet. In this guide, we’ll explore 11 practical alternatives to SBA loans, including their pros and cons, to help you make an informed decision that keeps your business moving.

1. Invoice Factoring

Invoice factoring is an SBA alternative where you transform outstanding client invoices into cash. Instead of waiting for customers to pay up, you sell your invoice to a factoring company, which gives you near-immediate access to funds. Solutions like altLINE provide up to 90% of the invoice’s face value and then directly collect the funds from your customer.

Like any alternative to SBA loans, invoice factoring has pros and cons. The average small business might not qualify for invoice factoring since it uses many of the same requirements as SBA loans. You need a stable sales history and customers with strong creditworthiness to factor invoices.

Pros	Cons
Get almost immediate cash flow	Approval depends on your customers’ credit
Incur zero debt	High-risk small businesses or startups might not qualify
No collateral required	Factoring companies may directly contact your customers for payment
Choose which invoices to factor

2. Traditional Bank Loans

Traditional bank loans are a savvy SBA alternative for improving cash flow. You can go to a bank or a credit union for these loans, which often have lower interest rates than other types of alternative lending. Still, traditional bank loans have stringent requirements like the SBA. You’ll still need strong credit, a solid financial history, or collateral to secure these loans.

Pros	Cons
Lower interest rates and longer repayment terms	Stringent eligibility requirements and high rejection rates
Larger loan amounts are possible	Rigid terms
Get access to other financial products and services through the bank or credit union	Time-consuming application process

3. Short-Term Loans

If you aren’t a fan of long-term loans from a bank, consider short-term loans. They’re one of the most popular alternatives to SBA loans because they offer quick cash on hand with shorter repayment periods. Businesses usually get short-term loans to cover immediate needs, like paying unexpected expenses or taking advantage of time-sensitive opportunities. Short-term loans are great if you need quick financing, but they usually have higher interest rates and less favorable terms because of their shorter timelines.

Pros	Cons
Quick approval and funding within days	Higher interest rates and weekly or daily repayment requirements
Ideal for quickly improving cash flow	Smaller loan amounts
Flexible usage for covering payroll, inventory, and more	Potential for repeated borrowing and getting into debt

4. Business Credit Cards

Loans require a lot of paperwork. Consider a business credit card if you want an SBA alternative to cover ongoing expenses. It can cover day-to-day expenses and smaller purchases without the lengthy bureaucracy of applying for a loan. And yes, you can still get a business card with bad credit—you just have to choose the right card for your business.

The downside to any credit card is higher interest rates and the potential for getting into debt. Evaluate your ability to repay the credit card every month (ideally for more than the minimum amount) to avoid the headaches of business debt.

Pros	Cons
Quick and convenient	High interest rates
Build credit	Risk of overspending and accumulating debt
Earn cashback, travel rewards, and other perks

5. Business Line of Credit

With a business line of credit, you can draw funds as needed. Unlike traditional bank loans, you only pay interest on what you borrow, not your total credit limit. It’s similar to invoice factoring, but with a business line of credit, you essentially get a pre-approved limit to borrow. It doesn’t depend on your customers’ creditworthiness but on your business’s credit.

The downside is that business lines of credit also have strict qualification requirements, like SBA loans. If you can’t qualify for an SBA loan, you might not be able to access a business line of credit.

Pros	Cons
Borrow only what you need with revolving credit	Difficult qualification requirements
Collateral usually isn’t required	Variable interest rates
Improves business cash flow	Lower limits than traditional loans

6. Equipment and Inventory Financing

Do you need funding just for products or machinery? Try SBA alternative loans like equipment and inventory financing. With this option, you get a specialized loan to buy inventory or machinery without upfront capital. A lender secures the loan with the equipment or inventory, which makes it easier to qualify for this type of SBA alternative. However, some lenders will still require strong credit scores or consistent revenue.

Pros	Cons
Secured by assets, so it could be easier to qualify for than an unsecured loan	Can only be used for equipment or inventory
Depreciation of equipment offers tax benefits	Depreciation of inventory or equipment could mean you owe more than the asset is worth
Make large purchases without depleting working capital	High interest rates

7. Debt Financing

Debt financing is one of the most popular alternatives to SBA loans. With this option, you borrow money from a lender and repay it over time, plus interest. Whether you want to expand your business or just need help covering operating expenses, debt financing can help you make ends meet. Still, poor credit could make it hard to find financing with favorable terms, so don’t be afraid to shop for the right lender.

Pros	Cons
Retain ownership of your company, unlike equity financing	Pressure for repayment
Fixed, predictable repayment terms	Requires collateral
Widely available	High interest rates

8. Equity Financing (Such as Angel Investors)

Some SBA alternative loans, like equity financing, require thinking outside the box. With this option, you raise capital by selling a portion of your business to an investor. If you’ve ever watched a show like Shark Tank, you’ve seen companies bring on angel investors and venture capitalists in exchange for funding. The upside is that these investors bring a lot of experience to the table.

You don’t need to repay debt with this option, but it does mean you give up ownership and control of your business. Startups and high-growth companies can do well with equity financing, but it isn’t an option for every business.

Pros	Cons
No obligation for repayment	Loss of ownership
Access to expertise and help	Requires sharing profits with investors
Flexible funding	Complex negotiations and operations

9. Grants

Grants are the best alternatives to SBA loans because they’re essentially free money. If you’re looking for a no-strings-attached cash infusion, this is it. Nonprofits, the government, or private organizations award most grants. With a grant, there’s no obligation to repay the funds—they’re yours, free and clear.

However, grants are hard to come by and usually have very strict eligibility requirements. Even if you qualify, grants are very competitive and take a long time to process.

Pros	Cons
No repayment required	Highly competitive and time-consuming
Improve growth and innovation	There are restrictions on how you use the funds
Earn prestige and credibility for your business

10. Crowdfunding

If you’re having a hard time qualifying for alternatives to SBA loans, it might be time to try crowdfunding. Crowdfunding collects small donations via platforms like Kickstarter or GoFundMe. Many small businesses use these platforms to collect donations from lots of individual contributors, making it possible to bring a product to market without taking on debt.

However, it’s important to note that you can’t crowdfund for everything. It’s highly dependent on other people’s goodwill and requires effective marketing to meet fundraising goals.

Pros	Cons
No requirement for repayment	Success isn’t guaranteed
Great for startups without history or a credit score	Expensive platform fees
Builds community and awareness	All-or-nothing models mean you only receive funds if you meet your goal

11. MCA or ACH Loans

Merchant cash advances (MCA) and automated clearing house (ACH) loans are other SBA alternatives that provide quick access to funds. With these options, you get a cash advance based on future sales or by withdrawing fixed amounts from your bank account.

MCA and ACH loans give you fast access to funding with minimal paperwork. Still, we don’t recommend them. They come with high costs and complicated repayment structures that could strain cash flow and increase debt.

Pros	Cons
Fast funding and minimal paperwork	Extremely high costs
No collateral required	Frequent repayment requirements
Flexible repayment options	Risk of debt

In-Summary: SBA Loan Alternatives

SBA loans are great if you can get them, but they aren’t available to all businesses. Fortunately, there are plenty of SBA loan alternatives to choose from, each with its own set of pros and cons. Weigh the 11 options in this guide to find the best way forward for your business. The best pick for your company should support sustainable growth without straining your cash flow.

Need a Quick Cash Flow Boost? Try Invoice Factoring with altLINE

Slow-paying customers can weigh down your business. altLINE’s invoice factoring effectively converts these outstanding invoices into immediate funds—without incurring debt. Receive up to 90% of your invoice value within 48 hours or less.

altLINE focuses on the creditworthiness of your customers rather than your business’s credit history, making it accessible even if you have less-than-perfect credit. Get cash in hand and let our professional team work on the collection process. Request a free quote now to turn your outstanding invoices into cash.