6 December 2023

Check Out These 17 Awesome Small Business Funding Options!

By Ronald Smith

Hey there, fellow entrepreneur! If you’re looking for some financial support to kickstart or grow your small business, you’ve come to the right place. I’ve got the scoop on 17 incredible resources to compare and find the perfect fit for your needs. So, let’s dive in and see which one suits you best!

1. Grants: Free money? Yes, please! Grants are like gifts given to eligible small businesses to help them thrive. You don’t have to pay them back, which is pretty amazing!

2. Small Business Administration (SBA) Loans: The SBA offers loans specifically designed for small businesses. They have flexible terms and lower interest rates to make it easier for you to get the funds you need.

3. Microloans: These are small loans that provide a quick financial boost to your business. They are typically offered by non-profit organizations and can be a great option if you need a smaller amount of money.

4. Crowdfunding: Want to involve the community in your business journey? Crowdfunding allows you to raise money from a large number of people who believe in your idea. It’s a fantastic way to get support and create a loyal customer base.

5. Angel Investors: Angels to the rescue! Angel investors are individuals with deep pockets who are willing to invest in promising small businesses. They can provide not only money but also valuable guidance and connections.

6. Venture Capital: If you have a high-growth potential business, venture capital might be your golden ticket. Venture capitalists are like fairy godmothers who sprinkle their funding magic on startups with big dreams.

7. Business Credit Cards: Need some extra flexibility and convenience? Business credit cards can be a handy funding tool. They allow you to make purchases and pay them off over time, just like a personal credit card.

8. Personal Savings: Sometimes, the best investment comes from within. If you have some money set aside, using your personal savings can be a great way to fund your small business without going into debt.

9. Friends and Family: They say, family comes first, right? Well, if your loved ones believe in your business as much as you do, they might be willing to lend you a helping hand. Just be sure to keep it professional and have a clear repayment plan.

10. Peer-to-Peer Lending: Skip the banks and go straight to your peers! Peer-to-peer lending platforms connect small business owners with individuals willing to lend money. It’s like borrowing money from a friend, but slightly more formal.

11. Equipment Financing: If you need specific equipment for your business, equipment financing can save the day. You can lease or buy the equipment and pay it off over time, allowing you to get what you need without breaking the bank.

12. Invoice Factoring: Waiting for payments can be a real bummer. Invoice factoring allows you to sell your unpaid invoices to a third-party company for a percentage of their value. It gives you quick cash flow and peace of mind.

13. Business Lines of Credit: Need a safety net for unexpected expenses? A business line of credit provides you with access to a pre-approved amount of money that you can draw from whenever you need it. You only pay interest on what you use.

14. Online Lenders: The internet has revolutionized the lending world. Online lenders offer a fast and convenient alternative to traditional banks, allowing you to apply for a loan from the comfort of your own home.

15. Business Incubators: Looking for more than just financing? Business incubators provide startups with mentorship, resources, and networking opportunities to accelerate their growth. It’s like having a whole team of business experts in your corner.

16. Government Programs: Uncle Sam wants to help too! Government programs offer support in the form of grants, loans, and resources specifically tailored for small businesses. Check out what your local and state governments have to offer.

17. Non-Profit Organizations: Some non-profit organizations are dedicated to helping small businesses succeed. They provide a range of resources, from funding to educational programs, to give you a helping hand on your entrepreneurial journey.

So there you have it, my friend – 17 amazing small business funding options for you to explore. Each one has its own benefits and considerations, so take your time to research and find the perfect fit for your unique business. Remember, success is just around the corner, and with the right funding, you’ll be unstoppable!

Check Out These 17 Awesome Small Business Funding Options!

Let’s talk about something super important for small business owners – getting the funding they need to succeed. Did you know that a survey found that 44% of small business owners had to borrow money to cover their expenses? Yep, it’s a common thing.

But guess what? Seeking financial help doesn’t mean you’re failing, not at all! It’s actually a smart move to help your business grow and keep it running smoothly. In fact, 56% of those who borrowed money did so to expand their business or get important assets. So, loans are a big part of planning for success.

This survey, done by the U.S. government, shows just how many small businesses rely on funding resources to thrive and survive.

What Are Your Options for Getting Funding?

When it comes to funding your small business, there are plenty of options to consider. Let me walk you through the 17 most effective ways to finance your business:

1. Traditional Bank Loan

A traditional bank loan is a simple and straightforward way to get a lump sum of money for your business. The best part is that you usually don’t have to put up any collateral, and the payback terms are fixed. This means you’ll know exactly how much you need to pay back each month. Typically, these loans last for 7 years, but they can also be tailored to match the estimated lifespan of the equipment you’re purchasing for your business.

Perfect for: business owners who need funds to buy assets that will boost their company’s revenue.

Check Out These 17 Awesome Small Business Funding Options!

2. Get a Short-term Loan

A short-term loan is a smaller loan compared to a traditional business loan. You usually have to pay it back within 12 to 84 months. The interest rate can stay the same or change. If you pay off a series of short-term loans on time, it can improve your credit score as a small business owner.

Who is it best for: Startup businesses that need money while waiting for other funding.

Find out more about: Short-term Loans

3. Get a Commercial Real Estate Loan

Businesses can get commercial real estate loans for two things: buying property or constructing a building for their business. These loans have fixed or variable interest rates and are usually paid off within 7 to 10 years. You can borrow at least $50,000 with these loans.

Great for: Buying real estate, especially when you plan to live in it. Lenders will lend you money up to 80% of the value of the real estate you want to live in. It’s also a good way to finance the construction of a property. Some lenders may offer construction loans where you only pay interest, helping you manage your money until it becomes a regular loan.

Check Out These 17 Awesome Small Business Funding Options!

4. Flexible Credit Solution

In need of some extra cash to cover immediate expenses such as inventory or employee salaries? Look no further than a line of credit loan, which offers a wide range of financing options to suit your needs. These loans typically come with a variable interest rate and may require you to provide assets as collateral. Keep in mind that if you don’t have collateral, the interest rates may be higher. Additionally, the smaller the loan amount, the higher the interest rates.

Best for: business owners who need immediate funds to cover short-term expenses, such as inventory or payroll.

For more information, read: Business Line of Credit

5. Secure Funding with SBA Loans

The small business administration offers a reliable option for obtaining business loans, as they guarantee a significant portion of the loan payment. Lenders who participate in the SBA loan program find this guarantee reassuring. With a wide range of loan choices available, the SBA loan program is a convenient and comprehensive solution for business financing.

So, let me tell you about the Small Business Administration (SBA). They are all about helping out small businesses like yours. Now, you might be wondering, what’s with all the extra paperwork for an SBA loan? Well, let me explain.

The thing is, the extra paperwork is actually super helpful. It helps you put together a complete loan package. And trust me, having a complete loan package is important when you’re applying for a loan.

Now, who would benefit the most from an SBA loan? Well, if you’re a business that needs to borrow a large amount of money, then an SBA loan is perfect for you. Why? Because it’s guaranteed, which means you can borrow more money and have longer repayment periods. Pretty cool, right?

Check Out These 17 Awesome Small Business Funding Options!

When it comes to SBA loans, there’s a whole bunch of options out there. Wanna know more? Check out Types of SBA Loans

6. Online Loans

I gotta be honest, some online loan companies have a bad reputation. You know, those ones that seem like loan sharks hiding behind a fancy website.

But hey, don’t let them sour your opinion completely. There are actually legit online lenders that can help you out with your business financing. Even big banks like Wells Fargo, Chase Small Business, and Capital One have online loan options.

And let me tell you, applying online is so darn convenient. You don’t have to jump through all those hoops just to reach a lender. Plus, there are these fancy FinTech providers, like PayPal Working Capital, Kabbage, OnDeck, and Biz2Credit, that make the whole thing even easier.

If you have debts and want to improve your credit score, an online loan that consolidates your debt could be helpful. Traditional lenders prefer to see one creditor instead of many, so paying off your creditors could make your business credit score better.

This type of loan is best for borrowers with a bad or unestablished personal credit rating who need money quickly. Online lenders can help with that.

To learn more, check out Online Lenders.

7. Merchant Cash Advances

Let me explain how a merchant cash advance works. You’ll get cash from a financing company in exchange for a percentage of your daily credit or debit card receipts. To do this, you’ll need to open a merchant account where the payments will be deposited. The financing company will then be paid from that account.

Getting financing through MCA can come with expensive fees. But don’t worry, you can easily search for MCA companies online. The best part is, they don’t require a high credit score from you.

If your business has a good track record of credit and debit card sales, you can typically borrow anywhere from $2,000 to $250,000. And guess what? Even if your credit score is 500 or better, you can usually qualify for merchant cash advances.

Who is this best for, you ask? Well, it’s perfect for small businesses that have poor or no credit history and need a quick boost in cash flow.

8. Accounts Receivable Financing

Usually, businesses can’t consider unpaid invoices as an asset. Lenders want to see actual money in your bank account.

If you’re a small business and you have invoiced goods and services that haven’t been paid yet, lenders who provide Accounts Receivable Financing see those outstanding monies as an asset. Even though you haven’t received the payment, there’s a schedule for when it’s due.

When it comes to backing Accounts Receivable Financing for a business, lenders use special software called Invoice Factoring. This software helps sync the invoices between your business and the lender. So when you get paid, the lender gets paid too, all through the software.

This is a great option for small businesses that have seasonal income or defined short-term cash periods, and need working capital in the meantime.

9. USDA Loan

If you’re a farmer or a rancher who needs some extra capital, you can borrow up to $10 million from the USDA. Typically, the interest rates for these loans range from 5 to 9%.

If you’re looking for a way to finance your business, you might be interested in the USDA Business and Industry Loans Guarantee program. This program provides a specific type of financing that can be very helpful.

To be eligible for this program, you need to live in a rural area. This means the area has a population of less than 50,000 people.

In order to qualify for this loan, you’ll need to have a good credit score. You’ll also need to have at least 10% equity in your farm or ranch. If you’re starting a new business, the requirement is 20% equity.

One of the great things about this loan program is that it comes with mentorship and advice. The program provides support in developing your business plan, in addition to discussing the loan details.

This loan program is best suited for farmers and ranchers who need funds for renovation, modernization, purchasing real estate, or buying inventory and supplies.

Discover more: USDA Loans

10. Financing for Equipment

An equipment financing loan can be set up as a term loan, line of credit, or a combination of the two. The flexible loan options make it easier to repay than traditional loans.

You don’t need to make a big down payment. The lender might even let you include installation costs and sales tax in the total loan amount. This way, your business can keep its working capital while expanding.

Great for: Businesses that need a fleet of vehicles, like delivery trucks. You can also use this type of loan to buy packaging machines and refrigeration units.

11. Business Credit Cards

If you have a business, having a credit card specifically for your business is really important. It helps you keep track of your expenses and gather all the information you need for tax purposes.

But a business credit card can be useful for more than just tracking expenses. It’s actually easier to get approved for a business credit card than it is for a loan. However, keep in mind that the interest rates on credit cards tend to be high, so it’s best to use a credit card for short-term financing.

Making timely payments on your business credit card can also help your company build a good credit history. And there might even be some rewards or cash back you can earn!

Who is this best for: Businesses that need to manage their cash flow. You can set up the credit card payments to align with your business’ billing cycle.

12. Microloans

When starting a new business, it’s common to turn to loans for financial support. These loans provide money that can be used for training and technical assistance, giving the business a solid foundation to build upon.

If you’re a startup that meets the basic qualifications and needs $50,000 or less, these loans are a great option for you.

If you want to learn more about these types of loans, take a look at microloans. They offer valuable information that can help you make informed decisions about your business’s financial needs.

13. Crowdfunding

Let me explain crowdfunding in simple terms. It’s a way to get small amounts of money from a large number of people, and it all happens on the internet.

There are four primary types of crowdfunding:

1. Equity: This means that the owner of the business sells a portion of the company to investors in exchange for funding.

2. Donation: As the name suggests, people simply give money to the business without expecting anything in return.

3. Debt: In this type of crowdfunding, the owner receives money from individuals and is obligated to repay them.

4. Rewards: With this type, donors contribute a set amount and, in return, receive products, services, or gifts.

Great for: new businesses, entrepreneurs.

Find out more: What is Crowdfunding and a List of Crowdfunding Sites

14. Peer-to-Peer Lending

Peer-to-Peer Lending works similarly to Equity Crowdfunding, where a private investor is involved. However, in Peer-to-Peer Lending, the business owner doesn’t sell a part of the business. Instead, they receive a loan from a peer.

The Peer lender expects a return on their investment. Since they’re taking on all the risk, they want a good return. That’s why the interest rates are often high.

How does it work? There are websites like Upstart and Prosper that facilitate Peer-to-Peer Lending. Businesspeople can join these websites either as a borrower or a lender.

The Peer-to-Peer Lending websites have software that calculates the borrower’s credit rating.

15. Trade Credit

Trade Credit is when a business sells goods or services to a buyer on credit, allowing them to pay at a later date agreed upon by both parties.

By using Trade Credit, the buyer doesn’t have to pay at the time of purchase, which helps the business manage its operating cash.

Trade Credit is commonly used by businesses involved in international trade. For example, a U.S. business may receive a Standby Letter of Credit or a Commercial/Import Letter of Credit from a U.S. bank. This letter is like a guarantee from the bank, which improves the business’s credit reputation overseas.

Best for: Businesses involved in international trade.

16. Equity Investment

Imagine a show called Shark Tank. It’s all about investors who are willing to help out businesses in exchange for a share in their company. Sounds exciting, right? Well, in reality, this kind of investor is pretty rare. They’re called angel investors, venture capitalists, or private equity investors. They’re not easy to find, but they can be a game-changer if you do manage to find one.

Basically, these investors give you money, and in return, you give them a stake in your business. They believe in your potential and want to make some money off of it. But here’s the catch: in order to attract these investors, you need to have a good grasp of your business numbers and a solid business plan. You’ve got to stand out from the competition.

So, who is this option best for? It’s ideal for a young company that has a lot of room to grow and is looking for some serious financial backing.

17. Startup Financing

Some of the lenders we talked about earlier also offer financing for startup companies. But just to cover all our bases, there’s another option: Community Development Finance Institutions.

I want to tell you about CDFIs. They’re nonprofit lenders that can help you get a loan without needing a lot of collateral.

Here’s the really good thing about CDFIs: they understand that sometimes people have bad credit for a reason, like personal or family problems. So even if you have a low credit score, they might still listen to your story and give you a loan.

This is especially great for business owners who have bad credit due to things like illness or accidents.

Checking Your Business’s Finances before Asking for Money

Before I dive into the journey of getting money for my business, I need to take a good look at how my company is doing financially. This step is super important because it helps me get ready for potential questions from lenders and investors, and it also helps me figure out the best way to get the money I need.

  • Checking my Cash Flow: I need to understand how money is coming in and going out of my business. Taking a close look at my cash flow will show me how well my business is doing day to day.
  • Calculating my Debt-to-Income Ratio: This fancy term helps me understand how much money I owe compared to how much I’m making. A lower ratio usually means my business is in good shape financially, and that can make it easier to get the funding I need.
  • Keeping Your Finances Stable: It’s important to take a close look at what you own, what you owe, and how much equity you have. By understanding your balance sheet, you can make smart decisions about the best way to fund your business.

Making the Application Process Easier

Applying for funding can be different depending on what kind of funding you’re looking for. Each source of funding has its own requirements and steps to follow.

  1. Know What You Need: Each type of funding, whether it’s a bank loan, an SBA loan, or an online lender, has specific requirements. It’s important to understand what they are and make sure you have everything ready.
  2. Get Ready with a Strong Business Plan: Before applying for a loan, it’s important to create a detailed business plan. This plan should include information about how your business works, an analysis of the market you’re in, financial projections, and how you plan to use the money.
  3. Get Your Finances in Order: Make sure to have all your financial statements, like income statements, balance sheets, and cash flow statements, organized and ready. These papers are really important because lenders use them to understand how financially healthy your business is.
  4. Think About What Lenders Might Be Concerned About: Be prepared to address any concerns that a lender might have, like your credit history or problems with your cash flow. If you have explanations or strategies to handle these concerns, it can make your loan application stronger.

Getting the Right Help

When it comes to making important financial decisions for my business, I know how crucial it is to seek expert guidance. Whether I need advice on financial planning, applying for loans, or exploring funding options, there are several resources I can turn to.

  • Consulting Financial Advisors: One option is to reach out to a professional financial advisor who can provide personalized advice tailored to my business’s unique needs and financial situation.
  • Utilizing Business Development Centers: Small Business Development Centers (SBDCs) and similar organizations are there to help. They offer free or low-cost advisory services, including assistance with financial planning and guidance on loan applications.
  • Connecting with Business Networking Groups: Building connections with other business owners through networking groups can be extremely valuable. They can share their insights and experiences with different funding options and lenders, giving me a wealth of knowledge to tap into.
  • Exploring Online Tools: In our digital age, there are countless online financial management tools and platforms available. These resources can help me with financial planning and provide a better understanding of the various funding options out there.

Making Sure Your Business Keeps Growing After Getting Funding

Getting money is just the beginning. After you secure funding, it’s important to manage your finances effectively to ensure your business can keep growing.

Ways to Manage Your Finances Effectively After Getting Funding

  • Create a Detailed Budget: Make a plan for how you will use the money. Having a detailed budget helps you keep track of spending and makes sure the funds are used in the best way to help your business grow.
  • Think About Reinvesting: Consider how you can use the funds to make even more money for your business. This might mean expanding your operations, hiring important staff members, or investing in marketing.
  • Handle More Money: It’s important to know how to manage the extra money you have after receiving funding. Spend it wisely in areas that will give you the highest return on investment.
  • Get Ready for the Future: Always keep an eye on what’s coming next. Regularly evaluate your financial situation and plan for future funding needs, such as expanding your business, starting new projects, or having a backup fund.

By following these strategies, small business owners can not only secure funding but also use it effectively to ensure long-term success and stability.

Frequently Asked Questions about Small Business Financing

What Do Lenders Consider When Providing Financing?

The factors that lenders consider when providing financing for small businesses are similar to those considered by lenders when giving loans for buying a house or a car.

  • Business plan – When applying for a loan, you need to provide the lender with your business plan. This document outlines your goals and explains how the loan will help you achieve them.
  • Business revenues – To assess your financial stability, the lender will typically ask for your business revenue records from the past two years. This includes your income tax records.
  • Clean History – It’s important to have a clean history when it comes to taxes. You shouldn’t have any tax liens or overdue payments personally or in relation to your business.

Which Financing Option is Right for My Business?

Choosing the best financing option depends on several factors: the amount of money you need, the repayment terms you prefer, and how quickly you need the funds.

    When you need the money quickly, getting a line of credit loan is usually faster than getting a term loan. You can even get a loan from internet sites in as little as 36 hours.

    To start, it’s a good idea to check with your existing bank and see what programs they offer. Many small businesses go to their bank first for financing. Especially if your bank is an SBA lender, you should explore those options.

    Sometimes, a referral from someone you trust can be very helpful. If a colleague or mentor has had a positive experience with a certain type of financing or lender, they can point you in the right direction.

    Another important factor to consider is whether collateral is required. Some businesses, like knowledge-based or online businesses, may not have many physical assets to use as collateral. However, there are still loans available that don’t require collateral, such as various types of term loans.

  • Chances of getting funded – If your credit score is low, it’s not worth your time to pursue traditional ways of financing. Instead, you should look into online financing or merchant advances that are more suitable for individuals with poor credit.
  • Expenses and interest rates – Although you might come across a lower interest rate, the loan might come with additional fees. Depending on how long it takes to pay back the loan, these extra fees could cancel out any savings from the lower interest rate.

Source: The Small Business Credit Survey by the Federal Reserve Banks, page 17.

How can I finance a business with no money?

If you have no funds, it can be challenging to get a loan to start a business. However, with determination and resourcefulness, you can overcome this obstacle. Remember, when you have nothing, the only way to go is up.

  • Friends and family – Your close group of friends and family might be willing to support your venture.
  • Using personal credit cards – It’s not the best option, but many entrepreneurs start businesses by using credit cards.
  • Using a home equity loan – Again, not the ideal choice because it can be risky for your family, but some people start a business this way. It can also help establish a good credit history.

How Can I Get a Small Business Grant?

If you want to obtain a small business grant, it’s important to know where to look and avoid wasting time in the wrong places.