Crackin’ piggy banks

One could say troubled times fuel innovation.

Even if bank-related financing is hard to come by, a few options remain where even small businesses with poor credit and limited assets can access funding. Alternative financing models such as microfinancing, peer-to-peer lending, and most recently, crowdfunding, have become increasingly mainstream. The following funding options were compiled by The Frugal Entrepreneur:

1. Microlending

Microlending programs provide funding via community-based, nonprofit microfinance institutions. While any business can apply for microlending, typically businesses in rural or disadvantaged communities use this means. 

• The Small Business Association Microloan Program provides direct funding to nonprofit intermediary lenders such as community-based organizations, who then provide microloans to small business owners and entrepreneurs. The Small Business Jobs Act of 2010 helped the SBA program grow to a loan limit from $35,000 to up to $50,000. SBA microloans do have restrictions – monies can’t be used to cover debt or purchase real estate, for instance. A list of participating microlenders by state is provided on the SBA website.

• Accion USA, one of the largest microlenders in the U.S., also offers small business loans up to $50,000, with competitive interest rates, no application fee, and an online application. Accion also offers small business consulting on how to deal with traditional financing.

• Kiva, an international microlending organization that in 2010 set up U.S. headquarters in San Francisco, operates a peer-to-peer lending web portal where small business owners and entrepreneurs can apply for loans by posting their “pitch” online. Investors make donations of $25 or more, and borrowers are not required to offer collateral. Once accumulated, the funds are distributed to the borrower through local microfinancing institutions.

• Communities at Work Fund was established in May 2010 with $199 million in capital provided by Citi, Calvert Foundation and Opportunity Finance Network. The program offers loans to small businesses and community service organizations in underserved communities via the Community Development Financial Institution. Microfinance Gateway and Association for Enterprise Opportunity are two similar institutions.

2. Peer-to-peer lending

Small businesses with good credit can access peer-to-peer lending and other funding at lower interest rates on unsecured financing, avoiding all the processing, requirements and fees associated with traditional business loans.

• Lending Club is a peer-to-peer program for business owners with a credit score of 660 or higher.  Loan requests can be made for free online, and borrowers can get a personal loan up to $25,000 within two weeks.

• Prosper.com works similar to Lending Club, but for business owners with a credit score of 640 or higher.

3. Crowdfunding

Crowdfunding offers online collectives that pool money in support of a project or organization. The borrower’s online reputation and popularity of the idea seeking funding are the main factors supporting the ability to receive investment. Unlike traditional means of raising capital, funds raised through crowdfunding are not directly repaid. Instead, investors receive good or services in exchange for their money.

Kickstarter is one of the more popular crowdfunding sites. Others include Venture Socially, Indeigogo, Grow VC, and Rocket Hub. A new kid on the block, Profounder, mixes crowdsourcing and peer-to-peer lending so that money pledged is repaid to investors through an interest-based revenue sharing system.