Small business owners fund themselves in defense mode in 2026, with many facing economic strain as a daily headache.
An alternative lender is any non-bank provider of business financing, including online lenders, finance companies, revenue-based financing providers and lending marketplaces. Most of them underwrite on recent bank deposits and cash flow rather than mainly on credit scores, tax returns and collateral, and they decide in hours or days rather than weeks.
As usual, the data tells the story.
According to the Federal Reserve’s Small Business Credit Survey, 29% of firms that applied for financing in 2025 applied at an online lender, up from 17% in the 2020 survey. Large banks are still the most common place to apply, but online lenders now rank second, ahead of small banks.
One emerging path back to economic stability is alternative lending.
Is the shift away from banks about bank restrictions or a better alternative experience? It’s both, business experts say, but the experience gap is now the bigger driver.
“Banks pulled back after rates rose, and large-bank approval rates for small business loans remain stuck in the low teens,” Ciarán Burke, co-founder and COO of Swoop Funding, told SBG.
Why Small Businesses Are Turning to Alternative Lenders
As the lending market has shifted toward alt lenders in the past several years, it’s worth noting what borrowers are seeing – and demanding – in the business loan marketplace. These issues stand out the most, experts say.
1. Changing Operational Attitudes Are Becoming More Common Among Business Owners
What’s really changed in the last five years among company financial decision-makers is their expectations.
“Business owners now run their whole company from a phone; banking, accounting, payments, and they expect finance to work the same way,” Burke noted. “Alternative lenders built for that world: application in minutes, data pulled directly from bank and accounting feeds, decisions in hours. A decade ago, the alternative sector was a lender of last resort. Today, for many businesses, it’s simply the path of least resistance. The bank didn’t necessarily say no, the owner never asked.”
2. Business Owners Increasingly Favor Quick Loan Deals
Alternative lenders are in demand because many owners need a financing answer fast. The Fed’s survey points the same way: applicants at online lenders ranked speed and their chance of being funded among their top reasons for choosing a lender, while bank applicants chose based on an existing relationship.
“A traditional bank may offer a lower rate, but a slow ‘maybe’ can cost more than a higher-cost loan if the owner misses payroll, loses a bulk inventory deal, or cannot take a new contract,” Teo Adiputra, CEO of Beverly, N.J.-based Stealth Agents, told SBG.
For small business owners, the big change in financing is not only tighter banks but also that alternative lenders have built the process around how owners work now.
“They look at cash flow, bank activity, sales trends, and payment history,” Adiputra said. “That can tell a better story than old tax returns or hard collateral, especially for service firms, e-commerce stores, and lean teams.”
Adiputra advises business owners seeking alternative loan financing to compare the total payback amount, speed of funding, repayment schedule, prepayment rules, fees, and how the payment will affect weekly cash flow.
That advice matters. In the Fed’s survey, 60% of firms that borrowed from online lenders said their actual borrowing costs were higher than they expected, compared with 37% at small banks and 32% at large banks.
“A loan that looks cheap can still hurt if the payment timing does not match the way money comes into the business,” he said. “I do think banks will improve, but alternative lenders will keep winning when speed and flexibility matter. In five years, the best lending experience will look more like a live cash-flow review than a thick paper file.”
3. Cash-Flow-Based Underwriting Has Changed the Game
How alternative lenders treat cash flow is proving to be a priority for business borrowers, and for the better.
“Conventional underwriting relies on past records, like FICO scores, tax returns, and hard collateral,” Cody Schuiteboer, president and CEO of Best Interest Financial, told SBG.
Now, streamlined cash-flow underwriting focuses on what businesses are doing currently. “This might include business daily deposits, revenue consistency, and the recognition of any seasonal changes that may be impacting the business,” Schuiteboer said. “That likely provides a more realistic picture of a business’s ability to repay than the value of a building or a truck for an operating business.”
Schuiteboer said he’s seen businesses with strong, sufficient monthly revenues and a 590 personal credit score flourish, while businesses with thin cash flow but plenty of hard assets struggle. “Nevertheless, the real-time information is rewarding healthy business operations and undermining unhealthy business operations,” he added. “Technology has made underwriting more accurate rather than making it more lenient.”
Types of Alternative Financing
| Option | How it works | Best for |
|---|---|---|
| Term loan | A lump sum repaid in fixed payments over a set term | A defined purchase or project |
| Business line of credit | Draw as needed and pay only on what you use; the limit refills as you repay | Recurring or unpredictable costs |
| Working capital | One amount sized to a known gap, with a fixed payoff | Bridging a single cash shortfall |
| Revenue-based financing | An advance repaid as a share of future revenue | Businesses with steady deposits but uneven months |
| Invoice financing | An advance of up to 90% of unpaid invoices | B2B firms waiting 30 to 90 days to be paid |
| Equipment financing | The equipment itself secures the financing | Vehicles, machinery and tools |
Here’s What Business Owners Can Expect to See in the Next Several Years
Company decision-makers will likely see more convergence than conquest by 2030 or so.
“Alternative lenders are likely to continue winning the sub-$250,000 market based on speed and access, and could potentially grab close to half of total origination volume,” Schuiteboer said.
Meanwhile, banks cannot remain idle, and many are implementing some form of a fast-track product that combines a bank’s pricing with the fintech product’s speed. “But five years later, I think that the nomenclature will mean nothing to borrowers,” Schuiteboer noted. “The lenders that will win, bank or non-bank, will be the ones that give a definitive answer within hours, do it in a fair and transparent manner, and are flexible as to the structuring of the repayment.”
The businesses that are going to win will be the ones that view financing as a strategic business tool, “and are flexible to shop the market rather than going to the lender that holds their operating account by default,” he added.
Burke agrees, adding that any battle between traditional banks and alternative lenders doesn’t end with a clear winner, but with a blur.
“Alternative lenders keep taking share in speed-sensitive, smaller-ticket lending, while banks respond by partnering with or acquiring fintechs and embedding their own capital behind faster front ends,” he said.
Meanwhile, lending is moving to where businesses already are — inside accounting software, payment platforms, and marketplaces — so many owners won’t consciously “choose a lender” at all.
“The businesses that win are the ones that compare the whole market rather than defaulting to a familiar brand,” Burke added. “Five years from now, the question won’t be ‘bank or alternative lender?’ but ‘which product, from whichever provider, fits this specific need?’ — and technology will make that comparison near-instant.”
Compare Your Options with SBG Funding
SBG Funding is a direct provider of revenue-based financing and a marketplace offering a broad range of funding solutions through an extensive network of lenders. One application shows you what you qualify for across those options, and applying doesn’t affect your credit score.
Get Started Today:
- Fill out our online application.
- Speak with a funding specialist to compare your offers.
- Submit your documents and receive funding quickly.
Typical Requirements:
- Four months of bank statements
- Minimum FICO score of 500, six months in business, and $150,000 in annual revenue
FAQs
An alternative lender is a non-bank provider of business financing, such as an online lender, finance company, revenue-based financing provider or lending marketplace. Alternative lenders usually decide on recent bank deposits and cash flow, so they can approve businesses faster than banks and fund owners that banks turn down.
Usually, yes, on rate. You pay for speed and easier approval. In the Federal Reserve’s survey, 60% of online-lender borrowers said their costs were higher than expected, so compare the total payback amount, fees and payment schedule, not only the rate.
Often, yes. Because cash-flow underwriting weighs your deposits and revenue alongside your score, many alternative lenders work with lower credit scores than banks do. SBG Funding works with scores from 500; see bad credit business loans for what’s available.
