Gone are those days, when the small businesses had to depend solely on traditional bank loans. The financing sector is rapidly evolving. Today, numerous alternative financing options, which are less tedious than bank loan applications, are available for small to medium scale businesses. These financing options are ideal for those who are not eligible to get a bank loan due to low credit scores or lack of certain documents, mandatory for bank loan approvals. Besides, these are quite accessible and initiate fast disbursement of the loan amount, unlike banks. Among these alternative options, many sources exist online.

The most popular types of alternative financing sources are:

Online Loans and Short-term loans:

These come with less rigid requirements regarding credit score, annual revenue etc. Easy to apply, online loans take less time to get processed and the amount to get disbursed. But, the only disadvantage is that these have higher rates of interest and fees, compared to bank loans. Online lenders offering short-term loans(STLs) have considerably high-interest rates and lax requirements. Short term loans, as suggested by the name, have a shorter repayment term, mostly within a year or a few months. These come with a factor rate fee structure instead of an interest rate and a higher total loan cost. The daily cash flow is prioritized over the credit score of the borrower. Also, STLs demand more frequent repayments, often daily.

Line of credit or LOC: 

It is a type of funding that can be got from a bank and an online leader as well. However, business LOCs are generally easier to get from the latter. This financing method offers working capital to businesses by granting an amount from which the borrower can draw any time the money is required. In other words, it is quite similar to the concept of a credit card, where one is charged only on the amount borrowed. An online LOC is perfect for those who need a certain amount of money but are keen to use the extra funding during tough times.

Merchant Cash Advance or MCA:

Quite similar to STL, MCA is relatively easy to get and follows a factor-rate fee structure. Fundamentally, it is an advance on the future earnings of the borrower. A certain amount of money is lent, which gets recovered through a percentage of the borrowers daily sales. As there is no payment deadline, the lender continues taking a cut from the daily sales until the total loan amount is redeemed. MCA is one of the few financing sources for businesses that are new, struggling or have bad credit scores. However, these are very expensive and often kept as the last resource.


These are mostly offered to start-ups, looking for working capital. Microloans are often granted to disadvantaged groups like minority-owned businesses, veteran-owned businesses and small scale women-owned businesses.


In this type of funding process, businesses raise funds from their peers online. Debt, rewards, equity and charity are the four types of crowdfunding. When it comes to ‘rewards crowdfunding’, one doesnt have to pay the amount back. However, the fundraiser needs to agree to give the supporters something in return. In equity-based crowdfunding, the lender invests in a business in exchange for a share of the company.

SBA Loans:

These are the US government-backed Small Business Administration(SBA) loans, which in certain cases can be acquired via an online lender. SBA loans guarantee a portion of a loan sanctioned by a credit union, bank, non-profit organization or other lenders, by assuring the repayment of a portion of the remaining debt if the borrower defaults on the loan. Hence, the bank can offer lower interest rates when backed by SBA.

Invoice factoring:

It is a type of financing, where the invoice factoring company purchases the unpaid invoice of a business and fronts it approximately 85-95% of the value of the invoice. The company collects payment from the customers and transfers the remaining amount of the invoice after subtracting a factoring fee of 1-5%. This kind of support is often required by businesses that have numerous unpaid invoices and are going through problems related to cash flow.

Invoice Financing:

Unlike invoice factoring companies, invoice financing companies grant a LOC with the unpaid invoices of the borrower as collateral. The LOC size is dependent on the amount of the outstanding invoices. This type of financing is ideal for businesses, which have unpaid invoices that do not need immediate cash or face problems with a third-party collecting from the customers. Besides, the fees of invoice financing are lower than that of invoice factoring.

Venture Capital or VC:

Venture Capital investments are an exchange of cash for shares. This type of investment is made mostly by individual investors or organizations, who are interested in the returns from a business, which shows high growth potential. In a VC investment scenario, the investors generally get involved in the business and are often keen to take up managerial roles or obtain board positions. 


To understand which kind of financing suits a business the best, one needs to ideally consider the amount of money required, the purpose of the funding, the timeline by which the cash is needed and the suitable time frame for repayment. To apply for the right kind of funding for your business,
you can visit ZEROPOINT Finance by clicking https://zeropointfinance.com/merchant-cash-advance/.