Get the Financing You Need With These 8 Small Business Funding Options

Business financing can give your small-scale company the boost it requires to flourish (and sometimes even survive). However, there are numerous different options for funding your business, and business owners may feel overwhelmed by the variety of options.

The best business financing solution for your needs will depend on a variety of aspects. Here’s a list of the top eight business financing options, as well as the advantages and cons of each one to you navigate the process of research.

1. Online Loans

The days of visiting a brick-and-mortar bank to get an enterprise loan. Today, it’s simple to locate online non-bank lenders who offer business loans that you can apply for from the comfort of your own home or workplace.

Limits on loans in terms of repayment, terms for repayment, fees, and interest rates can differ widely based on the lender you choose to work with and on the type of loan. You can also use this type of loan to pay for many expenses, including working capital and expansion costs as well as debt consolidation and buying inventory or equipment.

Business loans online may have greater flexibility in approval criteria as compared to traditional loans from banks. Based on Federal Reserve data 81 percent of applicants for business loans had been approved to receive at minimum some funds from the online lender prior to march 1st 2020. This number dropped to 55% following March 1st, 2020 (but it was the same for approval percentages for other financing sources at the time).

Through online lending, your company might be able to access more funds quicker, if the loan is approved. However, the speed of lending and flexibility typically comes at a cost.

2. Traditional Bank Loans

Traditional business loans from financial institutions like banks and credit unions, continue to be an extremely popular method for people to borrow money. For those who have the right qualifications those who are able to pay the rates for traditional bank loans for businesses tend to be a lower-cost alternatives.

However, it could be difficult for certain businesses to get bank loans, especially for startups and those with no established business credit. Even poor personal credit scores can be problems when seeking this kind of financing for the business.

3. SBA Loans

These loans are secured by the U.S. Small Business Administration (SBA) and are generally among the most economical ways to get access to business financing. When you take advantage of an SBA loan the federal government is able to guarantee some of the total amounts. This allows lenders to feel more comfortable in approving loans that could appear to be a risky investments in other ways.

The SBA does not issue loans. Instead, you’ll need to get in touch with a lender approved by the SBA for an application. Like conventional bank loans, you will likely have to jump through a series of hurdles to be eligible for this kind of business financing.

If you’re eligible but your company could be eligible to borrow as much as $5 million. Terms for repayment can extend to 30 years for some SBA loans. You could be able to get financing with an amount as low as 10 percent of the loan amount.

4. Business Lines of Credit

The commercial line of credit is the flexibility of allowing you to borrow money on an as-needed basis. If you’re not certain of the exact amount you’ll need for a particular project or you’re seeking a permanent financing source, a line of credit may be worth looking into.

Similar to credit cards, you are able to utilize a business line of credit to take out loans as long as the credit limit that you have set on your account. When your company is able to repay the money it borrowed then it will be able to use the credit line again but only up to the maximum limit. Once the draw period is over but you’ll no longer be able to use your credit line.

Credit lines for business credit are available from both traditional financial institutions as well as online lenders. The specific requirements for approval and the rates of interest and charges to borrow may differ significantly between lenders. next.

5. Business Credit Cards

business credit cards provide a second option to get credit and establish business credit. These types of loans could be easier to get in particular in the event that you are able to show high personal credit scores (at least 670). In this way, business credit cards are the perfect option for those trying to build business credit.

Of course, interest rates charged on credit cards can be very high even for qualified applicants. Average credit card interest rate in November. 2021 stood at 14.51 percent (based on Federal Reserve data for accounts with interest rates). This figure is a representation of consumers who use credit cards. Business credit card rates could be a bit higher, however, they are also based upon your individual credit rating as well as other variables.

6. Small Business Grants

Small grants for businesses are a source of funding that is appealing to business owners of all sizes. The most appealing aspect of grants is that you do not have to pay them back or to forfeit a percentage of your equity in the business in order to receive the money. They are, at their core free money.

On the other hand, there’s a chance that you’ll face intense competition when applying for small-scale business grants. Therefore, you might have to submit multiple requests (some of which could be long and complicated) to ensure your business is chosen for a cash prize. Grants can be very expensive in terms of business loans however they aren’t difficult to beat if your company is eligible.

7. Invoice Factoring

For companies that offer products or services to other businesses, invoice factoring is a different way to get financing. When you factor in invoices, your company sells its invoices that are outstanding to a third party. The factoring company that you choose to work with gives you a percentage of the cash up front in exchange for the invoices. Then, it takes payments from your customers and then gives you the remainder of the balance, minus an amount known as the factoring fee.

Your creditworthiness as the client is more important than your personal company’s credit scores in the case of this kind of loan. In other words, even with bad credit or no established credit, there is a chance that you could be able to get the financing you need. But, as you will experience with other non-traditional business financing sources and loans, the costs is often high when invoice factoring.

8. Crowdfunding

Crowdfunding is an easy option to raise money to meet your business objectives. A variety of crowdfunding options are available one is debt-based crowdfunding option, which you pay back; equity crowdfunding, where you search for donors; rewards crowdfunding which provides benefits to donors and donation-based crowdfunding.

Based on the kind of crowdfunding you’re looking to use for your company it is essential to choose an appropriate platform to run your campaign. A few options are:

  • Crowdfunding for debt.
  • Equity crowdfunding.
  • Rewards crowdfunding.
  • Donation crowdfunding.

Every type of crowdfunding comes with advantages and disadvantages to be aware of. For donation crowdfunding, for instance, you do not have to pay back the funds your business receives or have to share in the equity of your business to invest. However, spreading the word and making others enthusiastic about donating to your goals for the business isn’t easy.

Thelma J. Longworth