Money Talks: Alternative Financing Might Be Right for Your Business

Skipping the bank is now easier -- and more popular -- than ever.

learn more about Stephen Sheinbaum

By Stephen Sheinbaum

Opinions expressed by Entrepreneur contributors are their own.

Most people stay pretty mum about their money. Business owners are no exception -- even when it comes to the cash they might need to have a discussion or two about: the capital they need to run their companies.

They used to say nothing -- at least not publicly -- if they were turned down at the bank and less still if they sought capital from a source other than a traditional bank or union.

And they were turned down often: A Harvard Business School study last year found that just 37 percent of small businesses applied for bank loans, and almost half of those -- 43 percent -- got less than what they requested. Or nothing at all.

Weeks of paperwork and waiting, wasted.

Oh, how the times have changed. Thanks to technology and a dismal bank lending climate, business owners have discovered alternative finance, and they're recognizing that it can be even better than a bank loan.

Now that's something worth talking about.

Related: Accepting Bitcoin Payments: The Risks and Benefits

In 2008, there was more than $700 billion in loans of $1 million or less outstanding to small businesses in the U.S. By the end of 2013, there was less than $600 billion of these loans. The tighter lending protocols implemented as a result of the recession were choking off capital to small businesses. And even if money were available, there were fewer banks to lend it: The total number of banking institutions in the U.S. -- which had once been more than 18,000 -- fell to about 6,300 in 2013.

This was only part of the problem.

The U.S. Small Business Administration defines a small business loan as a loan of $1 million or less. It calls a loan of less than $100,000 a "micro" loan. But most small businesses need far less than even micro. They might need $10,000 for new equipment or $40,000 for new inventory. With their costly overhead, document-intensive processes and collateral requirements, loans that small are a non-starter for banks.

It's not surprising that small businesses have found another way: alternative finance and, more specifically, alternative finance delivered over the Web.

Related: 3 Startups Offer New 'Microloan' Options for Entrepreneurs With Big Ambitions

In just a few minutes, small business owners can research finance options that better match their needs and apply. They can get small amounts for short terms. They don't need to feel shamed for a blemished credit record because alternative finance companies can be more flexible on credit risk, and they can use a broader range of metrics to gauge the likelihood of there being a problem with the funding down the road. Perhaps most importantly, business owners know almost instantly how much financing they'll qualify for.

But all of that might have counted for very little if alternative finance hadn't just become so cool. Alternative finance companies help businesses find funders they've never met who believe in their business and their prospects for growth. Business owners are speaking out about the funding they've gotten from alternative finance companies

There are now more Google searches for alternative finance than there are for some of the country's largest banks, and it's great that established businesses are creating partnerships with alternative finance companies.

With new options coming from alternative finance providers, I don't think it will be long before the alternative finance industry gets to say -- like McDonald's -- "billions and billions served."

Related: Crowdfunding's Growth Spurt Going Strong

Stephen Sheinbaum

Founder, Bizfi

Stephen Sheinbaum is founder of Merchant Cash and Capital

Related Topics

Editor's Pick

Everyone Wants to Get Close to Their Favorite Artist. Here's the Technology Making It a Reality — But Better.
The Highest-Paid, Highest-Profile People in Every Field Know This Communication Strategy
After Early Rejection From Publishers, This Author Self-Published Her Book and Sold More Than 500,000 Copies. Here's How She Did It.
Having Trouble Speaking Up in Meetings? Try This Strategy.
He Names Brands for Amazon, Meta and Forever 21, and Says This Is the Big Blank Space in the Naming Game
Business News

These Are the Most and Least Affordable Places to Retire in The U.S.

The Northeast and West Coast are the least affordable, while areas in the Mountain State region tend to be ideal for retirees on a budget.

Thought Leaders

The Collapse of Credit Suisse: A Cautionary Tale of Resistance to Hybrid Work

This cautionary tale serves as a reminder for business leaders to adapt to the changing world of work and prioritize their workforce's needs and preferences.

Business Solutions

Learn to Build a ChatGPT Bot for Only $30

If you want to see what AI can do for your business, grab this course bundle today.

Health & Wellness

5 Essential Steps to Expand Your Vision and Start Living Your Dream Life

It's time to break free from your comfort zone and expand your vision. When you refuse to settle for a mediocre life, you can start building a life you love.

Business News

The 'Airbnbust' Proves the Wild West Days of Online Vacation Rentals Are Over

Airbnb recently reported that 2022 was its first profitable year ever. But the deluge of new listings foreshadowed an inevitable correction.

Business News

Meta Employees Interrogate Mark Zuckerberg in Town Hall Meeting

The CEO fielded tough questions from rattled staffers at an all-hands meeting.