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.
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.