It's no secret that small businesses are finding it harder to obtain funding from financial lenders. Although the recent recession has contributed to tightening lending standards, the biggest reason for banks to deny small businesses funding is because most startups fail within their first three years. 

Behind the Scenes

When it comes to funding solutions for small businesses, there are usually two routes to take: the first consists of lenders providing borrowers with capital for an agreed period of time and is then repaid with interest. The second is comprised of investors seeking to acquire a certain amount of stake in the company.

Let's concentrate on the first. Lenders are indifferent to an entrepreneur's vision for a great business. Instead, they tend to focus their attention on risk management and whether your business is going to  be capable of paying back the funding they’ve provided. 

With traditional bank loans, small businesses often find they must comply with an outdated and labor-intensive lending process. A process like this is usually unfavorable when it comes to local mom-and-pop shops.

"The difficulty of accessing capital is exacerbated because many small businesses applying for loans are new businesses or startups," wrote Sara Angeles of BusinessNewsDaily. "Instead, banks typically want to see at least a five-year profile of a healthy business (for instance, five years of tax data) before extending an offer." 

Moreover, banks are also interested in what sort of collateral a small business owner can put up in the event that they cannot pay back the funds that they borrowed. Lenders look for personal assets, paper assets, future income, the company's hard assets and property.

If you, as an entrepreneur, don’t have any collateral whatsoever then you can occasionally get approved for a microloan, otherwise known as microfinancing (this ranges between $500 and $100,000). The downside to these sorts of loans is that microloans place restrictions on what you can or cannot do with the money, like using it for working capital and equipment.

Types of Small Business Funding

With that being said, if you're a small business and you're seeking out capital then the alternatives are quickly expanding. From crowd-funding to peer-to-peer lending, the financial tools available to enterprises have transformed a lot in the past few years, and they could potentially disrupt the mainstream, status quote financial markets. 

Another type of small business funding that is gaining tremendous momentum as of late is a merchant cash advance. This type of financing works typically like this: a financial services firm provides you with a lump-sum amount of money and these funds are paid back through a certain percentage of credit and debit card sales. 

What You Need to Know About Merchant Cash Advances

For instance, if a small business borrows $100,000 and agrees to pay an additional $25,000 then the lender takes 10 percent of each credit or debit transaction until the entire amount - $125,000 - is paid off. Merchant cash advance firms say they are simply acquiring future income.

It's an alternative solution for cash-strapped small businesses that want to expand the business, renovate the premises or introduce a brand new marketing campaign in order to compete with those in their respective industries.

Merchant cash advances are aiding small businesses, and considering that a strong majority of commerce in the United States today is small- and medium-sized business (SMB) oriented, this is forcing financial institutions and lenders to gradually change the way they offer capital.

Do you want to start as soon as possible? Well, you can apply for a merchant cash advance today to help give your brand that much needed business funding