While small-business lending is rising, many entrepreneurs remain ineligible for bank loans and government-guaranteed programs. Still, there are alternatives available for businesses to get money.
The most recent Small Business Administration data shows loans increased by more than 1.5 percent from the first quarter of 2014 to same quarter in 2015.
But 50 percent of small businesses didn't receive any financing they applied for in the first half of 2014, according to the most recent Small Business Credit Survey by several Federal Reserve banks. This is up from 47 percent in the first half of 2013. (Tweet This).
For business wiling to look beyond traditional sources, crowdsourcing offers another potential capital source.
"Although small businesses make up a vital part of the economy, access to small-business loans has been restricted since 2008," said Sean O'Malley, president and co-founder of SmartBiz, in an August interview. Banks often refuse to issue smaller loans to entrepreneurs, he added.
The average government-guaranteed loan in 2012 was nearly $338,000, but most small businesses seek loans of less than $100,000, according to the SBA.
Alternative lending platforms tend to have higher, risk-based interest rates. Lending Club's rates range from 5 to 29 percent, Prosper Loans sets rates from approximately 6 to 36 percent and Harmoney's rates vary from 10 to 40 percent.
There are alternatives, however. Crowdsourcing platforms allow businesses to solicit contributions from online communities, providing independence that bank loans do not.
With crowdfunding, entrepreneurs provide rewards to lenders instead of promising repayment. Perks may include copies of the company's product, merchandise and mementos.
There are dozens of platforms that cater to crowdfunding, but Kickstarter and Indiegogo are the most popular.
Kickstarter is strictly for creative projects and has seen more than $2 billion pledged since 2009. Indiegogo, which is open for all campaign types, has raised more than $800 million since 2008.
Kickstarter and Indiegogo both have all-or-nothing campaigns: a model that motivates backers and decreases risk for creators. However, Indiegogo offers a flexible plan that allows creators to keep all funds regardless of success. Both platforms charge campaigns 5 percent of the total funds raised.
Warning: campaign creators on both platforms are subject to legal action if they do not complete their project or fail to fulfill promised perks.
Crowdfunding may not always be suitable. Entrepreneurs seeking financing for new employees, advertising and renovations should seek other options.