8 Small Business Financing Options: Get The Funding You Need (2024)

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Business funding can give your small business the boost it needs to thrive (and sometimes survive). Yet there are many business funding options, and some business owners might feel overwhelmed by the number of choices.

Finding the best business funding option for you will depend on several factors. Below you’ll find an overview of eight popular business funding solutions, along with the pros and cons of each to help guide you through the research process.

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1. Online Loans

Gone are the days of having to visit a brick-and-mortar financial institution to take out a business loan. Today, it’s easy to find online nonbank lenders that offer business loans that you can apply for in the comfort of your home or office.

Loan limits, repayment terms, interest rates and fees can vary widely depending on the online lender you work with and the loan type. And you can use this type of financing to cover a wide range of expenses, such as working capital, expansion costs, debt consolidation, and purchasing inventory or equipment.

Online business loans may offer more lenient approval criteria than traditional bank loans. According to Federal Reserve data, 81% of business loan applicants were approved for at least some funding with online lenders prior to March 1, 2020. That figure dropped to 55% after March 1, 2020 (but so did the approval percentages with other financing sources at that time).

With online loans, your business may be able to access funding faster, assuming it’s approved. But, of course, lending speed and flexibility often come at a price.

Pros and Cons of Online Loans

Pros Cons
Qualification requirements may be more lenientInterest rates are often higher than traditional bank loans
Fast funding turn timesFees may be more expensive than other types of business financing
Preapproval process may be availableThe cost of funding might not be as transparent or easy to understand

2. Traditional Bank Loans

Business loans from traditional financial institutions, like banks and credit unions, remain a popular way to borrow money. For well-qualified borrowers, the interest rates with traditional business bank loans tend to be a more affordable option.

However, it can be tough for some businesses to qualify for bank loans—especially for new startups or those without established business credit. Even bad personal credit scores could present an obstacle when applying for this type of business funding.

Pros and Cons of Bank Loans

Pros Cons
Interest rates may be lowerEligibility requirements can be strict
Borrower satisfaction levels are highest with loans from credit unions, small banks and large banksFunding speed can be slow
Could help you build business creditMight not qualify with bad credit or a lack of established credit (business or personal)

3. SBA Loans

Loans backed by the U.S. Small Business Administration (SBA) tend to be one of the more affordable ways to access business financing. With SBA loans, the federal government guarantees a portion of the loan. That makes lenders more comfortable approving borrowers who might appear to be a risky investment otherwise.

The SBA itself doesn’t issue loans. Instead, you’ll need to contact an SBA-approved lender to apply. But like traditional bank loans, you may need to jump through numerous hoops to qualify for this form of business funding.

If you can qualify, however, your business might be able to borrow up to $5 million. Repayment terms can stretch out as long as 30 years with some SBA loans, and you might get financing with a down payment as small as 10% of the loan amount.

Pros and Cons of SBA Loans

Pros Cons
Competitive interest ratesLengthy loan approval and funding process
Lengthy repayment terms often availableQualification criteria can be strict
Low down payment requirements may be possiblePersonal guarantees from all business owners (20% ownership or more) may be necessary

4. Business Lines of Credit

A business line of credit offers a flexible way to borrow money on an as-needed basis. If you don’t know the exact amount of money your business needs for a project upfront, or if you’re looking for a standing source of capital, a business line of credit might be worth considering.

Like a credit card, you can use a business line of credit to borrow funds up to the credit limit on your account. As your business repays the funds it borrows, it can access the credit line again—up to the limit. When the draw period expires, however, you’ll no longer have access to the credit line.

Business lines of credit are available through both traditional financial institutions and online lenders. So, the specific approval criteria you encounter, along with the interest rates and fees to borrow, can vary a great deal from one lender to the next.

Pros and Cons of Business Lines of Credit

Pros Cons
Offers flexibility to borrow multiple times from the same credit lineInterest rates can be higher than traditional bank loans, especially when working with an online lender
Only pay interest on the amount of money your business usesCosts can add up, especially if you’re paying high interest rates and fees
May help you establish business creditCredit limit may be lower than the loan amount you could access with other funding sources

5. Business Credit Cards

Business credit cards represent another flexible way to access financing and establish business credit. This type of funding may be easier to qualify for as well, especially if you have good personal credit scores (at least 670). For this reason, business credit cards can be a great tool if you’re looking for a way to establish business credit.

Of course, the interest rates on credit cards can be high, even for well-qualified applicants. The average credit card interest rate for Nov. 2021 was 14.51% (based on Federal Reserve data for accounts that assessed interest). That figure represents consumer credit cards. Business credit card interest rates may be somewhat higher, but they also depend on your personal credit rating and other factors.

Pros and Cons of Business Lines of Credit

Pros Cons
Avoid interest if you pay your full statement balance before the grace period endsMay appear on personal credit reports and could hurt credit score in some cases
Possibly earn rewards or cash back on regular business spendingPersonal guarantees are typically required (though there are some exceptions)
May help you establish business creditBusiness credit cards don’t have the same federal protections as consumer cards

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6. Small Business Grants

Small business grants represent a funding option that can be attractive to any business owner. The main appeal of grants is the fact that you don’t have to repay them, nor do you have to give up a portion of your business equity to secure the funds. They are, in essence, free money.

On the negative side, you’re likely to face steep competition when you apply for small business grants. So, you may need to fill out many applications (some of which may be detailed and tedious) if you hope for your business to get selected for a cash award. Grants tend to be a long shot when it comes to business funding, but they’re hard to beat if your business can qualify.

Pros and Cons of Grants

Pros Cons
There’s no need to repay the funds your business receivesResearching grant opportunities can be time-consuming
You don’t have to offer equity in your business in exchange for an investmentApplications and proposals may be lengthy, and you might need to hire someone to help you manage the process
There are no monthly payments to factor into your business budgetBecause grants are so valuable, your business may face a lot of competition from other interested applicants

7. Invoice Factoring

For businesses that provide services or products to other companies, invoice factoring represents another way to access funding. With invoice factoring, your business sells its outstanding invoices to a third party. That third party—a factoring company—gives you a portion of the money upfront in exchange for those invoices. Then, it collects payments from your customers and gives you the remaining balance minus a percentage called a factor fee.

The creditworthiness of your customers matters more than your own business’ credit scores when it comes to this type of financing. So, even with bad credit or no established credit, you might be able to qualify. Yet as you may encounter with other nontraditional business funding sources, the cost of borrowing can be high with invoice factoring.

Pros and Cons of Invoice Factoring

Pros Cons
Funding qualification can be lenientFactor fees can be expensive, often 0.5% to 5%
You may be able to access funding in a short period of timeThe factoring company will communicate with your customers to collect invoices
Your business may be able to use the funds for a wide variety of expensesOnly available for business-to-business (B2B) invoices

8. Crowdfunding

Crowdfunding is an out-of-the-box way to raise cash for your business goals. Several crowdfunding options include: debt crowdfunding that you repay; equity crowdfunding where you seek investors; reward crowdfunding that offers benefits to donors; and donation-based crowdfunding.

Depending on the type of crowdfunding you’re interested in for your business, you’ll want to find an appropriate platform to manage your campaign. Some options:

Each type of crowdfunding has its benefits and drawbacks to consider. With donation crowdfunding, for example, you don’t have to repay the funds your business receives nor share equity in your company in exchange for investments. But getting the word out and getting others excited about donating to your business goals can be challenging.

Pros and Cons of Crowdfunding

Pros Cons
Financial risk level may be low (though it’s higher with debt and equity crowdfunding)It can be difficult to stand out and attract donors or investors
You could build awareness for your brand, especially if your campaign goes viralThere are fees involved, even with donation-based crowdfunding
Crowdfunding might help you test your business’ viability before making a big investmentYour efforts might not pay off

Bottom Line

Researching the different types of business loans and other funding options puts you in a better position when you need to access business capital. From there, you can take the time to review the steps you need to take to qualify for a business loan before you start filling out applications.

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8 Small Business Financing Options: Get The Funding You Need (2024)


How do small businesses get funding for the first time? ›

  1. Savings. Most start-up founders use their personal savings to fund their businesses, according to the Gallup Small Business Index. ...
  2. Personal Loans. ...
  3. Credit Cards. ...
  4. Bank Loans. ...
  5. Venture Capital and Angel Investors. ...
  6. Government Programs. ...
  7. Corporate Programs. ...
  8. Crowdfunding and Crowdlending.
12 Sept 2022

What are financing options? ›

Understanding Financing

There are two main types of financing available for companies: debt financing and equity financing. Debt is a loan that must be paid back often with interest, but it is typically cheaper than raising capital because of tax deduction considerations.

What are the 10 sources of finance? ›

Below are many varied paths you can source funds to finance your business.
  • 1 1. Personal savings/ Owner's fund/ Owner's equity.
  • 2 2. Family and friends.
  • 3 3. Bank credit.
  • 4 4. Partnership.
  • 5 5. Money Lenders.
  • 6 6. Angel investors.
  • 7 7. Venture Capitalist.
  • 8 8. Customers.

How do I self finance a business? ›

Ways to Self-Fund Your Business
  1. Cash - Checking & Personal Savings.
  2. Friends & Family.
  3. Rollovers for Business Start-ups (ROBS)
  4. Crowd Funding.
  5. Bootstrapping.

How do I get investors for my startup? ›

How to find investors for a startup
  1. Ask family and friends. The first people many startup entrepreneurs consider when they need investors are often their own friends and family. ...
  2. Look for equity financing sources. ...
  3. Apply for a small business administration loan. ...
  4. Find private investors.

How can I raise money to start a business without a loan? ›

How to Raise Working Capital for Your Business Without Taking a Loan?
  1. Equity Financing. ...
  2. Invoice Finance. ...
  3. Asset Finance. ...
  4. Business Cash Advance/Merchant Cash Advance. ...
  5. Peer 2 Peer (P2P) Lending. ...
  6. Investors (Private, Angel) ...
  7. Grants. ...
  8. Crowdfunding.
7 Jun 2022

What are the 7 types of equity funding? ›

Here are seven types of equity financing for start-up or growing companies.
  • 01 of 07. Initial Public Offering. ...
  • 02 of 07. Small Business Investment Companies. ...
  • 03 of 07. Angel Investors for Equity Financing. ...
  • 04 of 07. Mezzanine Financing. ...
  • 05 of 07. Venture Capital. ...
  • 06 of 07. Royalty Financing. ...
  • 07 of 07. Equity Crowdfunding.
16 Jun 2020

What are the three financial options? ›

“It takes money to make money."
3 Financing Options for When Your Business Needs Funding
  • Traditional Bank Financing. When your business needs funds, a bank is probably the first place you think of. ...
  • SBA Loans. ...
  • Alternative Debt Financing.
17 Jan 2018

Is PPP money still available? ›

The PPP ended on May 31, 2021. Existing borrowers may be eligible for PPP loan forgiveness. SBA also offers additional COVID-19 relief.

What is startup funding? ›

Startup Funding. Funding refers to the money required to start and run a business. It is a financial investment in a company for product development, manufacturing, expansion, sales and marketing, office spaces, and inventory.

How many types of funding are there? ›

There are three types of startup funding: equity funding, debt funding, and government grants. Each funding option has its pros and cons.

What are the different funding options available for start ups? ›

There are three types of startup funding: equity funding, debt funding, and government grants.

What are four financing options that you may consider to assist you to start your own business? ›

Here are a few financing options that you can consider.
  • Find your finance at a reputable bank. Make sure the banks has a good reputation. ...
  • Crowd funding is a great way to find out if there is interest in your business idea. ...
  • Government assistance.
10 Apr 2018

How can I raise money to start a business without a loan? ›

How to Raise Working Capital for Your Business Without Taking a Loan?
  1. Equity Financing. ...
  2. Invoice Finance. ...
  3. Asset Finance. ...
  4. Business Cash Advance/Merchant Cash Advance. ...
  5. Peer 2 Peer (P2P) Lending. ...
  6. Investors (Private, Angel) ...
  7. Grants. ...
  8. Crowdfunding.
7 Jun 2022

How do small businesses pay back investors? ›

There are a few primary ways you'd repay an investor: Ownership buy-outs: You purchase the shares back from your investor depending on the equity they own and the business valuation. A repayment schedule: This is perfectly suited to business loans or a temporary investment agreement with an assumption of repayment.

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