September 13, 2023
min read
Written by: 
Nikolaus Hilgenfeldt

4 Alternative Financing Solutions for Small Business

If you are looking for financing options for your business, you may have come across the term "4F funding," which stands for Friends, Family, Fools, and Founders.

No wonder, since 38% of startup founders raise money from their family and friends to support their finances.

While this may seem like a heartfelt effort, it is like trying to fill an Olympic-sized swimming pool with a garden hose - it's not enough. You need more funding options to make a big splash in the business world.

It’s also worth mentioning that you won’t have to sit through any awkward family dinners in case you miss a payment or two.

Alternative financing comes to the rescue when traditional financing options fall short.

You can tap into crowdfunding or asset-based lending to turn your inventory, equipment, or receivables into cold, hard cash.

So, read along to find out which type of alternative financing for small businesses is right for you!

Why Should You Consider Alternative Financing For Small Businesses?

For small businesses, access to funding is often the keystone that can make or break a company's success.

Traditionally, small business owners have relied on traditional financing sources like bank loans to fuel their operations and growth.

However, the landscape of small business funding is undergoing a profound transformation, with a growing recognition of the importance of alternative financing options.

For example:

  • Traditional banks often pose obstacles like strict credit standards, lengthy approvals, and collateral demands, making them inaccessible for many small businesses. 
  • The fintech revolution has democratized capital access with innovative options like crowdfunding, peer-to-peer lending, and asset and revenue-based financing. These tech-driven alternatives offer convenience and accessibility beyond what traditional banks provide.
  • Many promising small businesses often face denial of funding due to the risk-averse approach of traditional lenders.
  • Alternative financing providers may have a higher risk tolerance, making them more willing to support businesses with innovative ideas or those in emerging industries.
  • The speed and efficiency of the application process allow entrepreneurs to seize opportunities as they arise.

The Benefits and Drawbacks of Different Types of Alternative Financing

Let's explore some common forms of alternative financing for small businesses and discuss the advantages and disadvantages associated with each.

1. Asset-Based Financing – Best For Improving Liquidity and Supporting Growth

Asset-based financing is where a small business uses its assets, such as equipment, inventory, or accounts receivable, as collateral to secure a loan or line of credit.

This financing option is often used for working capital needs, cash flow management, or expansion. 

The lender evaluates the value of the assets and provides a percentage of that value as a loan.

However, if the business fails to repay the loan, the lender can seize and sell the assets to recover their funds.


✅ Asset-based financing allows businesses to leverage their existing assets as loan collateral.

✅ Companies with valuable assets can access capital despite weak credit score.

✅ The funds can be used for various purposes, including but not limited to working capital, expansion, and debt consolidation.


❌ Valuing assets accurately can be complicated, leading lenders to appraise them conservatively and limit financing options.

❌ Asset-based financing often comes with fees and interest rates that can be higher than traditional loans, increasing the overall cost of capital.

❌ If the business defaults on the loan, the lender can seize and liquidate the collateral, causing significant operational consequences.

Pro Tip From Myos

Let's consider a small furniture manufacturing company named "ABC Manufacturing."

Though the company has valuable equipment and a substantial amount of accounts receivable from its clients, it is currently experiencing a temporary cash-flow problem due to an unexpected increase in demand for its products.

To overcome this issue, ABC approaches a lender specializing in asset-based financing.

Myos uses an AI-based algorithm to evaluate the company's equipment and concludes they are worth $200,000.

Based on their assessment, the lender agrees to provide ABC with a Stock finance loan secured by these assets.


With this, ABC can access $150,000. They can draw funds to cover increased production costs, hire additional staff, or fulfill larger orders. 

The crucial benefit of this asset-based financing arrangement is that it allows ABC to bridge its cash flow gap and seize growth opportunities without selling its valuable equipment or seeking other forms of financing.


Nevertheless, suppose ABC fails to repay the lender according to the terms. In that case, the lender can liquidate the pledged assets to recover the outstanding debt.

2. Crowdfunding – Best For Start-ups with Effective Marketing Campaigns

Crowdfunding is a way of raising capital by collecting small contributions from a large number of people through online platforms like Indiegogo or KickStarter.

It allows you to reach a broad audience of potential investors or backers interested in supporting your business ideas.

There are several types of crowdfunding for small businesses:

  • In equity crowdfunding, backers receive equity shares in exchange for their investments. They become partial company owners and are eligible for a percentage of their profits.
  • Reward-based crowdfunding is when backers provide financial support to a project or business in exchange for non-monetary rewards. These rewards may include early access to a product, a limited edition, or other incentives. 
  • Debt Crowdfunding (Peer-to-Peer Lending): Small businesses can borrow money from groups of investors through online lending platforms and repay borrowed funds with interest over a specified period.
  • Donation-based crowdfunding involves backers supporting a project or cause without expecting any financial return. It is commonly used for charitable or creative endeavors.
  • Revenue Sharing or Profit Sharing is where investors receive a percentage of a company's future revenues until a certain amount is repaid.


✅ Crowdfunding platforms enable businesses to access a vast network of potential investors, including individuals, groups, and institutions.

✅ Successful crowdfunding campaigns can serve as proof of concept and generate early market interest.

✅ It usually doesn't require giving up equity or taking on debt, making it a favorable option for early-stage businesses.


❌ Crowdfunding campaigns require a compelling pitch and unique value proposition to succeed on highly competitive platforms.

❌ Launching a successful crowdfunding campaign can be time-consuming and demanding, requiring significant effort in marketing and promotion.

❌ Crowdfunding platforms often charge fees, and there may be regulatory compliance requirements to navigate.


Jane dreamed of creating an eco-friendly jewelry line but needed more funds.

She turned to Kickstarter and set a $10,000 goal, with her handmade jewelry as a reward to backers.

Through a 30-day campaign, she exceeded her goal, raising $15,000 from supporters who shared her vision.


With the funds, Jane bought materials and equipment, launched her jewelry line, and fulfilled the rewards promised to her backers.

Crowdfunding provided Jane with capital and helped her build a community of like-minded supporters, turning her dream into a successful business reality.

3. Angel Investors – Best For Technology, Healthcare, or Biotech 

Angel investors invest money in early-stage or startup companies in exchange for equity or convertible debt. 

They are usually wealthy individuals interested in supporting and investing in promising businesses.

They provide financial resources, valuable expertise, mentorship, and connections.


✅ Angel investors often bring valuable industry knowledge and connections, offering guidance to entrepreneurs.

✅ They can be more flexible in their investment terms than venture capitalists, allowing customized agreements.


❌ Angel investors usually require equity in exchange for their investment, which can dilute the founder's ownership stake.

❌ They typically provide smaller amounts of capital, which may not be sufficient for significant growth.

❌ Ensuring alignment of interests and expectations with angel investors is crucial to avoid conflicts down the road.


Sarah is an ambitious entrepreneur with a brilliant tech startup idea. 

That's when Alex, an experienced angel investor with a background in the tech industry, comes into the picture.


Alex invests $100,000 in exchange for a 20% equity stake in Sarah's startup.

He also offers invaluable mentorship and connects Sarah with others who could help her. 

With Alex's support, the startup develops the app, gains traction, and receives acquisition offers.

4. Merchant Cash Advances (MCAs) – Best For Consistent Daily Credit Card Sales

A merchant cash advance (MCA) is a financing option where a business receives a lump sum of capital upfront for a percentage of its daily credit card sales and a fee.

MCAs are not loans but instead financing based on future credit card sales.


✅ MCAs provide a rapid infusion of cash, making them suitable for businesses needing immediate working capital.

✅ Unlike traditional loans, MCAs typically do not require collateral. 

✅ Repayment is tied to daily or weekly credit card sales, so it fluctuates with the business's revenue, offering flexibility during slower periods.

✅ MCAs often have more lenient credit score requirements than traditional loans, making them accessible to businesses with lower creditworthiness.


❌ MCAs can be expensive, with fees calculated as a percentage of the total advance, resulting in a high effective annual percentage rate (APR).

❌ The daily or weekly repayment can strain cash flow, particularly during sales declines.

❌ Some businesses get trapped in a cycle of renewing MCAs to cover ongoing expenses, leading to long-term financial challenges.

❌ MCAs may operate in less transparent or regulated environments, making them subject to varying degrees of regulation and leading to potential predatory lending practices.


"Sunny Café," a seasonal coffee shop, faced a cash flow challenge during slow months. They received a $20,000 merchant cash advance (MCA) with a total repayment of $26,000, including fees.


Sunny Café repaid 10% of their daily credit card sales, which fluctuated with daily revenue. 

MCAs offer quick cash access but can be expensive due to high fees.

Tips to Qualify for Alternative Financing and Secure Funding for Your Small Business


How to Choose the Right Alternative Financing for Small Businesses

Choosing the right alternative financing option for your small business is a critical decision that can significantly impact your company's growth and financial stability.

To make an informed choice, consider the following factors:


Embracing Alternative Financing as a Viable Solution for Small Business Growth

Alternative financing is more than just a response to limitations in traditional lending. 

It reflects the entrepreneurial spirit that thrives on innovation and adaptability.

By embracing these non-traditional funding sources, small businesses can secure the capital they need, foster resilience, fuel innovation, and position themselves for long-term growth.

As the small business landscape continues to evolve, alternative financing will undoubtedly play a crucial role in shaping the future of entrepreneurship.

What Makes Myos Different?

Yet, suppose you're a manufacturer, distributor, retailer, wholesaler, or service provider. 

In that case, your balance sheet boasts a substantial asset base.

In such instances, asset-based financing should top your list of funding options, and here's why.

  • The focus is on collateral quality rather than stringent credit requirements.
  • Compared to traditional lending, a faster and streamlined application process provides quick access to funds.
  • Versatile use of funds, including working capital, expansion, debt consolidation, or inventory purchases, catering to the diverse financial needs of small businesses.
  • You can retain full ownership and control of your business, as asset-based financing does not require giving up ownership stakes.
  • Converting assets into immediate cash can be used to cover operational expenses or invest in growth opportunities, ultimately enhancing cash flow.
  • Asset-based lenders may maintain ongoing relationships with your business, providing continuous support beyond the initial funding and fostering financial partnerships.
  • As your business expands and accumulates more assets, it can provide access to more significant financing, aligning capital with your growth trajectory.

How does it work?

At Myos, we use AI technology to examine your products, utilizing publicly available data.

Simply provide your product's ASINs or EANs, allowing us to analyze your inventory.

Then, share information on how you scout for products and fulfill orders.

After completing the previous steps, expect to receive a financing offer within 24 hours!

Eligibility Requirements

  • Registered office in Germany, Austria, Cyprus, or the United Kingdom (UK).
  • Not a shell or shelf company.
  • Minimum 6 months in operation.
  • At least 50 days of selling goods.
  • Products sold for a minimum of €5 (EU) or £5 (UK) and ready for sale.

Repayment Terms

  • Get €10,000-2,500,000 for your small business without a personal guarantee, giving up equity, or extensive paperwork.
  • Flexible repayment options tailored to your needs.
  • Loan term up to 12 months.

Early repayment without extra costs

  • Pay back the entire amount at the end or make regular payments.
  • Interest is calculated on the outstanding balance, allowing control of monthly fees through repayments.

Review Time

  • Financing request reviewed within 24 – 72 hours.
  • Option for expedited review on request.

So, what are you waiting for?

Sign up and get a free, non-binding offer today!


Are Alternative Financing Options Suitable for Startups and Businesses with Limited Credit History?

Many alternative financing options are accessible to startups and businesses with limited credit history, as they often have more flexible eligibility criteria than traditional lenders.

Is Alternative Financing Regulated, and Are There Any Legal Considerations to Keep In Mind?

Some forms of alternative financing are regulated, while others have fewer regulatory requirements. It's essential to be aware of and comply with relevant regulations to avoid legal issues.

Can I Repay Alternative Financing Early without Penalties?

It depends on the specific financing option and lender. Some alternative financing options, like Myos, allow for early repayment without extra costs, while others may have prepayment penalties.

Keep Learning

7 Best Amazon Seller Tools To Try in 2023

Ecommerce Inventory Management - The Definitive Guide

Cash Flow vs Asset-based Lending - What’s the Difference?

Also interesting

This is some text inside of a div block.