When it comes to securing a loan for a small business, it’s natural to think a bank is the best bet. And that may be true, but a loan may be more difficult to secure than you think.

Pepperdine University’s Private Capital Access Index, which examines business and private capital, had some interesting findings for the second quarter of 2013, as detailed by the Coleman Report:

  • Of small companies that were in search of funding, 59 percent targeted banks. The next highest percentage looked to business credit cards (57.2), personal credit cards (49.9), personal loans (48.4) and friends and family (44.2).
  • The success rate turns that list upside down. Seventy-one percent got funding assistance from friends and family, but only 27 percent did from banks.

What to do when banks give you the stiff-arm? Some businesses turn to alternative financing, in which loans are more accessible and faster, and not necessarily dependent on collateral. But these loans or cash advances can cost much more in the long run.

Alternative Funding Sources Can Be Expensive

A recent story in the New York Daily News featured a Philly cheesesteak restaurant in New York called Wogies. The owner, Aaron Hoffman, found that he wasn’t able to get a bank loan to expand his business.

“The banks didn’t want to have anything to do with me,” he said.

So he turned toward an alternative source, and got $50,000 from AmeriMerchant, a lender that provides money to small businesses. The company says its cash advances are not loans with annual percentage rates, “but rather a purchase of future credit/debit card receivables.” That means there’s not a fixed monthly payment, but AmeriMerchant gets a fixed percentage of daily sales.

The Daily News estimates that an AmeriMerchant loan of $100,000 can cost $125,000.

“Nobody wants to pay 20 percent,” Hoffman told the newspaper. “Unless you have a rich uncle, you are out of luck.”

On Deck Charges High Interest, But Customers Keep Coming

Let’s look at another of these companies: On Deck Capital, led by CEO Noah Breslow in New York. A March feature in Forbes says its loans are between $5,000 and $150,000, and average $30,000. On Deck charges 18 to 36 percent rates on loans that are paid back in three to 18 months, Forbes says. That’s a much higher rate than the typical bank loan, but it’s apparently working: According to the Daily News, On Deck showed a 150 percent increase in loan volume in the third quarter compared to 2012:

“Our growth is extremely rapid and it’s accelerating,” Breslow said. “The banks have been slow to go back into small business lending.”

American Express also has its merchant financing program, which is available to businesses that accept the credit card. The company’s website details how business owners can get cash each month at a fixed rate, or one lump sum each year. The money is put into the business owner’s bank account, and repayments are automatically deducted from American Express transactions.

The benefits are clear: You can get money fast from an alternative lender if you strike out at the bank. But be prepared. The higher rates will likely hurt, and revenue needs to be flowing to quickly pay off the loan.

Ty Kiisel, a Forbes contributor, looks at it this way:

“I’m not suggesting that alternative financing is the man on the white horse that will save small business — I don’t believe there is such a thing — but I am suggesting that used wisely, and with discretion, alternative financing is a valuable resource for short-term infusions of capital to fuel growth or help a business owner over a cash flow bump.”