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  • Writer's pictureTopiltzin Gomez

5 Alternatives to SBA Loans for Small Businesses

Updated: Aug 25, 2021

Two people share plates at a table at Casa Brazil, an authentic Brazilian restaurant in Pittsburgh

Looking for more information on small business loans? Check out Honeycomb's Ultimate Guide to Getting a Small Business Loan

You’ve probably heard that SBA loans are the crown jewel for small business owners. SBA loans are partially guaranteed by the government which allows banks to lend to small businesses at low rates. Unfortunately, getting an SBA loan is the tricky part.

Eligibility criteria vary by bank, economic climate, and the specifics of your business (like your industry), but generally, SBA applicants must have all of the following:

  • at least two years of operating history

  • strong annual revenue and profitability

  • a credit score of at least 690

  • collateral coverage of 120% of the value of the loan

  • a willingness to sign a personal guaranty from everyone that owns over 20% of the business

For entrepreneurs with only a few years of history, getting that coveted SBA loan is not a sure bet. Over the life of your business, you may need additional capital and not have the time to wait for the SBA’s 3-6+ month process. This is where alternatives to SBA loans come in.

After working with hundreds of small businesses, these are the alternatives to SBA loans we see most often:

Loans to grow your business

Loan Crowdfunding

While most people are familiar with donation crowdfunding websites like Kickstarter and GoFundMe, more and more businesses are using loan crowdfunding platforms to raise capital. Just like Kickstarter and GoFundMe, these websites allow everyday people to contribute to an entrepreneur’s campaign. However, unlike donation crowdfunding, these campaigns repay contributors.

Two of the most common loan crowdfunding platforms are Kiva and Honeycomb Credit. Kiva offers zero-interest business loans to entrepreneurs. Typically, entrepreneurs on Kiva can raise up to $5,000 and can access higher loan amounts up to $15,000 upon successfully repaying past Kiva loans. Kiva is one of the most accessible capital sources as it does not look at credit scores or prior financial history, making it a great fit for startup small businesses.

Second, there is Honeycomb Credit. Honeycomb is a loan crowdfunding platform where small businesses can access capital between $15,000 and $500,000. Businesses typically work with Honeycomb for two reasons. Firstly, Honeycomb is a great way to access fair, fully amortizing loans that won’t break the bank. Secondly, by encouraging your customers and fans to invest in your business, you’re able to build deeper customer relationships, turning the work of fundraising into a marketing campaign.

Community Development Financial Institutions

Another great alternative to SBA loans is a loan from Community Development Financial Institutions, CDFI’s for short. CDFIs are private, mission-driven financial institutions that focus on lending to community-based businesses. They like to lend to businesses that may be shut out from accessing SBA loans due to poor credit or limited operating history.

CDFI loans are typically slightly more expensive than SBA loans but they are great for businesses that are on the road to bankability. There are hundreds of CDFIs across the country, all with their own missions and lending criteria. To look for a CDFI in your backyard, check out this CDFI Locator Tool.

Financing to keep your cash flow stable

One month you might get a big sale, another month you might need to pay for emergency repairs on some expensive equipment. These ups and downs in cash flow range go from little bumps in the road to big disruptions depending on the tools in your cash flow management toolbelt. Businesses often manage these ups and downs in two ways: lines of credit and merchant cash advances.

Merchant Cash Advances

Merchant cash advances are a fairly new innovation in small business finance. You might not be familiar with the term, but you are probably familiar with some of their providers including Square Capital, CAN Capital, or PayPal Working Capital.

One important point to note is that Merchant Cash Advances (MCA) aren’t loans. Instead, their providers offer you a lump sum of cash in exchange for a cut of your future sales for a period of time. This can really add up so be careful to read the fine print - many Merchant Cash Advances end up having APRs between 80-350%! The magic of MCAs is their speed. Businesses can access funds from these providers in less than a week, sometimes even in a matter of days.

For businesses that are in a short-term pinch or need to fulfill a big order, these merchant cash advances can be lifesavers. However, businesses often fall prey to using this short-term fix as a long-term strategy. Make sure to read the fine print and consider other alternatives.

Credit Cards or Lines of Credit

One of the go-to ways of managing the ups and downs of cash flow is to use credit cards or their grown-up business equivalent: lines of credit.

Credit cards or lines of credit can increase your purchasing power, help you earn points, and make it easy to track your day-to-day expenses.

Credit cards are a great way to stay in a strong cash position during dips in the business without dipping into your own cash reserves. Just be mindful that eventually, you will have to repay that balance and the interest rate can be quite high.

Flexible financing beyond SBA loans

When starting a business, most businesses think about funding as an SBA loan as the make or break moment. But in reality, most businesses rely on many financial tools to scale, manage, and grow. Knowing what financial tools to use at what time can help you succeed.

If you’re interested in learning more about Honeycomb as a financing option on your path to bankability, you can learn more here.


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