Capital is the fuel that powers businesses. But the options for many entrepreneurs have been limited. Startup funding traditionally has been provided by friends and family members, or by angel or venture capital investors, who take a stake of the company. But not all entrepreneurs have those sorts of people in their networks. Venture capitalists are often focused on “unicorns" with billion-dollar plus potential, and women and people of color face additional obstacles when raising money. Bank loans are another mainstay for small businesses, but only for those with rock-solid credit and assets, such as buildings or equipment, that can be put up for collateral.

Fortunately, the funding options for new and growing businesses have expanded, and they are often more flexible and convenient than traditional options.

Here are four funding alternatives you need to know about.

1. Community Development Financial Institutions

They go by a clunky name, but these financial organizations—called CDFIs for short—can be a small business's best friend.

What sets these financial institutions apart is their social mission to focus on underserved businesses. CDFIs are typically nonprofits and practice the kind of old-fashioned “relationship" lending that some larger banks have abandoned. Because they are regulated differently (they are overseen by the U.S. Treasury Department) CDFIs have more flexibility than banks to lend to entrepreneurs that may lack the credit score and track record of collateral that banks require. In addition to low-interest loans, CDFIs often offer technical assistance and advice to help their borrowers succeed. Most regions have active CDFIs—you can search for one in your area here. One drawback: loan sizes are generally smaller than the loans that banks make.

2. Online “Peer-to-Peer" Lending

With the advent of “financial tech," a new crop of digital lenders has emerged. They don't have brick and mortar branches, but they leverage the internet to make applying for a business loan and getting approval quick and easy—in some cases, you can get an answer within minutes. Business owners will still need a decent credit score, and interest rates can be quite high. But the online lenders use creative ways of assessing risk, allowing them to lend to businesses that banks may reject.

Crowdfunding has been successfully used by startups and established businesses alike. It's especially attractive for businesses that have a loyal following, such as restaurants, microbreweries or consumer goods companies.

Some of the better-known lenders include Lending Club and Prosper. While those sites are mostly lending capital from hedge funds and others, online lenders such as StreetShares, which caters to veterans and others in the military service, and Worthy, a general small-business lender, allow individuals to invest in the loans.

3. Crowdfunding

You may be familiar with Kickstarter and Indiegogo, where people can contribute money to projects that they like, such as a film or a new gadget, in return for rewards. But did you know that individuals can also invest in small businesses via crowdfunding?

The 2012 Jumpstart Our Business Startups (JOBS) Act ushered in the concept of investment crowdfunding, where businesses can reach out to customers, neighbors and their broader networks for capital, whether through loans or equity shares in the business.

Entrepreneurs raising money through investment crowdfunding create a campaign, as they would on Kickstarter or Indiegogo. But since we're talking investment, there are additional requirements, including financial disclosure and legal filings, that might require professional assistance. Investment crowdfunding sites may typically charge a fee of anywhere from 5% to 10% of the capital raised.

One plus: businesses get to set their own terms for the deal. For example, whether shares come with voting rights or not, what the interest rate of a loan is, or if you want to pay your investors back by sharing a set portion of your revenue each quarter.

Crowdfunding has been successfully used by startups and established businesses alike. It's especially attractive for businesses that have a loyal following, such as restaurants, microbreweries or consumer goods companies.

There are dozens of such sites, with some focused on particular areas, such as Main Street businesses or real estate. Some of the bigger crowdfunding sites include WeFunder, SeedInvest, StartEngine and Republic.

4. Working Capital Loans

Working capital is the cash needed to run your day-to-day operations. Sometimes it can be in short supply, such as when you need to invest in inventory ahead of a busy selling period, or when you're waiting for accounts receivables to be paid. (The latter has become a common challenge, as many larger corporations have lengthened their payment cycles, in some cases to as much as 90 days.)

There's a whole cottage industry of lenders that aim to fill those working capital gaps. Accounts receivable finance, also known as factoring, can help businesses make ends meet while they wait for payment. Essentially, you sell your accounts receivable for cash up front, minus a discount for the convenience. The most convenient source of capital may be a business credit card, provided you don't carry a big balance. The bonus: many cards allow you to earn cash-back rewards or frequent flyer miles when you use them.

Raising capital will never be easy. But with new options for businesses, the odds have gotten a lot better.

Photo: Getty Images

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