Contests, crowdfunding, and other ways to finance a small business without a bank loan

Published 5:10 pm Monday, January 23, 2023


Contests, crowdfunding, and other ways to finance a small business without a bank loan

Roughly 1 in 3 small businesses in the U.S. sought a loan in 2021. The top reason for a loan was to meet operating expenses, followed by funding a business expansion and refinancing debt.

That’s according to the latest Small Business Credit Survey from the Federal Reserve, which found that about 75% of those loan applicants applied for credit from banks.

A bank loan could propel your business to new heights if tapped for the right reasons and under the right conditions. But not every small business wants to borrow from a bank, nor can every small business get approved by a bank. In general, the larger a company’s revenue, the more likely it is to seek a bank loan, as opposed to financing from a nonbank online-only lender, according to the Fed. Online lenders, also sometimes called fintech lenders, offer a range of credit options for capital, including loans, lines of credit, and cash advances using different financing models.

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When it comes to getting off the ground, only about 1 in 5 small businesses use a bank loan to get started. The rest rely on personal savings and less conventional sources. The younger a firm is, the more likely it is to seek alternative financing, the Fed survey found.  Young and startup enterprises may have increased difficulty accessing a traditional bank loan because they have less data on operations, fewer years in business, and may even need more proof of their business concept. Banks look at these factors to varying degrees when assessing whether a company or person is trustworthy enough to lend money.

Growthink compiled 10 alternatives to bank loans for small business funding, using information from the Small Business Administration, news coverage, and other sources. The good news is that many other funding sources are available to business owners if bootstrapping it alone seems daunting, has become onerous, or just feels downright impossible.

Small business team using computer.



Do you have a fully-fleshed idea for a product and are looking for capital to create it? Consider crowdfunding it. People often solicit funding on social networks or in public to crowdfund charities or other worthy causes. But increasingly, crowdfunding is being used to pay for developing innovative new products.

Sites such as Indiegogo and Kickstarter offer creators a way to connect with crowdfunded capital—and for many potential investors, opportunities to contribute small amounts of money that can add up to enough for a company to get moving. New platforms are emerging today as well, like StartEngine and SeedInvest.

Cropped view of person reviewing information on laptop, phone, and tablet.


Home equity

Home equity loans are one nontraditional place a small business owner might consider when needing capital. This loan, of course, requires the business owner to be a homeowner and to have paid off a significant portion of their mortgage: Most lenders will want to see you’re able to pay a mortgage before issuing a new one. A home equity line of credit, or HELOC for short, allows the homeowner to take out a loan against the value of the real estate.

One thing to consider when considering a HELOC is that the home becomes collateral and could face foreclosure should the business fail to repay.

Two small business owners packing and shipping apparel in shop.


Credit cards

Credit cards are one of the most popular forms of lending for consumers, but they’re also an option for businesses needing a smaller amount of cash soon. This route for alternative funding comes with added perks depending on the card, like airline miles, TSA PreCheck access, and cash back at certain places.

Another benefit is that, unlike commercial credit cards, there are business cards with no spending limits. This near-term financing comes with its risks, however. If the business owner carries a balance, they accrue additional debt. Interest rates can vary from 15% to 30% on cards offered by major institutions like American Express.

Person speaking on phone with laptop reviewing paper documents.



Grants for small businesses are everywhere—if you’re looking in the right places. Grants tend to be no-strings-attached forms of funding, so they come in smaller amounts than other forms of financing, like loans.

The Small Business Administration finances loans under the Small Business Innovation Research and Small Business Technology Transfer programs. The programs aim to help entrepreneurs undertake significant research and development efforts. The SBA also runs a grant program to help small businesses expand internationally.

Fashion designer looking at tablet in retail shop.



There is almost always an institution offering a cash award in a contest for small businesses somewhere in the U.S.

FedEx makes $30,000 grants available to business owners through a yearly contest. Shopify offers a similar program. The Chamber of Commerce regularly holds cash award contests. Goldman Sachs has run its 10,000 Small Businesses accelerator program for more than a decade, which helps provide access to loans that average $52,000 per borrower.

Person in workshop sanding vintage chair.


SBA microloans

The Small Business Administration offers loans of up to $50,000 to small business owners called “microloans.” These loans can be used for nearly any business expense except for real estate purchases and payments on existing debt.

The SBA approves several community-level financial institutions to distribute these loans, which the agency lists on its website. One of those institutions is California FarmLink, connecting California farmers with the capital they need to upgrade equipment and run their agricultural operations.

Two business owners discussing an application with a community development facilitator.


Community development finance institutions

The Community Development Financial Institutions Fund is a pool of money overseen by the U.S. Treasury and doled out to financial institutions that lend to and support low- and moderate-income or underserved communities. It was created in 1994 by a bipartisan coalition in Congress under then-President Bill Clinton.

The fund intends to use federal funding to stimulate economic growth in these communities. The CDFI Coalition maintains a state-level database of organizations that have received funds from the Treasury. It shows, for example, that in 2021, lenders in Mississippi received more than $200 million in funding from the CDFI.

Almost half of the CDFI-certified institutions are those considered “mission-driven”—focused on a social purpose rather than, or in addition to, profits.

Two professionals working at desktop computer having discussion.


Fintech lenders

Financial technology firms, sometimes called fintech or online lenders, have emerged in the last decade to fill lending gaps where traditional banks have fallen short.

Founded in 2008, Kabbage was so successful at connecting small businesses and entrepreneurs with microloans that American Express ultimately acquired it in 2020.

Another mechanism for funding that financial technology firms have brought to more businesses over the past decade is called “invoice factoring,” in which a company like Pipe buys a firm’s invoices at a discount and then collects the payments when they are due. It’s effectively a loan based on expected revenue, with cash upfront in exchange for payment down the road—and a fee, of course.

While online lenders have expanded access to credit and capital, the sector is also showing signs of becoming increasingly selective. In 2021, small business approval rates at online lenders declined as compared with 2020, according to the Fed. Small businesses also reported challenges with high interest rates and difficult repayment terms for loans obtained through online lenders in 2021.

Two professionals having a business discussion over coffee.


Angel investors

Depending on where your small business journey is—in development, starting up, early-stage, or growth—investors are looking to make a return on their fortunes and may want to lend to you.

Angel Investors are typically wealthy individuals seeking early-stage companies to invest in, to the tune of tens of thousands of dollars.

Since it’s riskier to invest in a company without much proof of concept, these investors may have higher expectations than others for how much return the business will generate for them and how quickly. These investors may also seek a company board seat or equity in the firm to exert some control over its trajectory.

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Venture capital

If you’re seeking funding at a later stage, there are hordes of venture capital firms looking for businesses that can grow their money.

In 2022, venture capitalists have invested some $300 billion in businesses around the world, according to the latest quarterly data from CB Insights. Like angel investors, a VC or VC firm may require equity in your business in exchange for cash. As partial owners, they contribute consultation and help make connections with other players in your industry.

VCs tend to invest millions of dollars depending on the company and its trajectory.

This story originally appeared on Growthink and was produced and
distributed in partnership with Stacker Studio.