Small Business Funding: 11 Financing Options

Small business funding can help you launch your startup, hire more staff, or open a new location. The type of funding that’s right for your small business will largely depend on what you need the capital for, but other factors, like how much capital you need, your willingness to take on debt, etc, will also come into play.

Between banks, online lenders, investors, and more creative avenues (like small business grants), there are a variety of sources to turn to find the funding your business needs.

Here are some of the best small business funding options. Click the links to jump to each option or keep scrolling to learn more.

1. Traditional term loans: Best for established businesses with strong credit.
2. SBA loans: Best for established, profitable businesses.
3. Business line of credit: Best for funding working capital.
4. Business credit cards: Best for startup business owners with no business history.
5. Equipment financing: Best for purchasing business equipment.
6. Invoice financing: Best for businesses with money tied up in unpaid invoices.
7. Short-term loans: Best for quick funding; businesses that can’t qualify for other options.
8. Equity investors: Best for businesses with high growth potential.
9. Small business grants: Best for free funding; community-focused or mission-oriented businesses.
10. Friends and family: Best for new businesses that need help getting started.
11. Crowdfunding: Best for B2C startup businesses.

A traditional term loan is perhaps the easiest type of small business funding to understand. You borrow a fixed amount of money, usually for a specifically stated business purpose, and pay back the loan over a fixed term with interest.

Since these are typically low-interest business loans (especially if they come from a bank), owners will need to have strong credit to qualify, and their businesses should be financially strong.

The Small Business Administration (SBA) helps entrepreneurs get funding for business needs in the form of long-term, low-cost business loans that are often the most desirable types of funding for small businesses.

Although the SBA itself doesn’t directly loan money to businesses, the agency incentivizes lenders (like banks) to approve small businesses for borrowing by guaranteeing all or part of their loans. For lenders, that means lower risk and higher reward.

However, because SBA loans are so desirable for small businesses, you’ll have to meet a number of specific requirements and go through a lengthy application process in order to qualify.

Unlike the first two small business funding options we’ve discussed, a business line of credit essentially works like a credit card: You have a certain amount of capital that you can draw on whenever you need—and you’ll only pay interest on what you use.

Plus, once you pay back the funds you withdrew, you’ll have access to all that cash again. This is why lines of credit are also called rotating or revolving credit lines.

Therefore, with a business line of credit, you can get more working capital, buy inventory, handle seasonal cash flows, pay off other debts, or address almost any other business need. It’s also great to have a business line of credit on hand to pay for unexpected business emergencies.

Business lines of credit are slightly more difficult to qualify for than a loan because they are constant sources of small business funding, but if you’re able to qualify for one, the peace of mind will certainly be worth it.

Business credit cards work just like personal credit cards, but they’re designed to be used solely for business purposes and covering business expenses.

Typically, business credit cards have higher spending limits than personal credit cards, as well as lower interest rates and better introductory offers.

Although you do need good credit to qualify for the best business credit cards, there are options for business owners who are rebuilding credit as well. Even startups can qualify for business credit cards. If you need a large amount of capital (over $50,000), a term loan or SBA loan will be a stronger option than a business credit card.

Equipment financing, as the name implies, is a type of debt financing that’s specific to purchasing equipment for your business. With this type of small business funding, the equipment itself serves as collateral on the loan—meaning the lender is more likely to approve it even if you don’t have stellar credit or financials.

That said, equipment financing can be structured in one of two ways: a lease or a loan. With equipment leasing, you are not the owner of the equipment but are instead paying to rent it. You pay monthly payments and sometimes have the option to purchase the equipment at the end of the lease.

Equipment loans are more like traditional term loans, with a fixed repayment schedule and interest based on the funds you need to purchase the equipment.

Invoice financing, also known as accounts receivables financing, is a form of business funding through which lending companies advance your accounts receivable through a quick cash advance of about 85% of the value of your invoices. Later, when your client pays the invoice, you’ll receive most of the additional 15% (minus fees). Invoice financing companies charge a small weekly percentage on the amount of your invoice.

If your business relies on customers paying their invoices, then you’ve probably encountered this problem before: A late payment from a customer could seriously impact your cash flow. With invoice financing, you’re basically paying a small fee to get your invoices paid immediately instead of at some undetermined time down the road. Depending on how your business’s cash flow works, it might be well worth the cost.

Plus, another benefit of invoice financing is that the provider won’t check your credit. Instead, they care more about your customers’ repayment behaviors.

A short-term loan is essentially a condensed version of a traditional term loan. You’ll receive a lump sum of business funding that you’ll pay down, plus interest, according to an agreed-upon remittance schedule. With short-term business loans, though, you’ll have to pay down your debt much quicker than you would with traditional term loans—typically within a year.

As a result, short-term loans will be much smaller, more expensive, and will come with more frequent payments (daily or weekly) than their longer-term counterparts. That said, short-term loans will definitely be one of the most accessible types of financing for a variety of business owners.

Short-term lenders often provide same-day business funding, and the qualifications you’ll need to secure a short-term loan are much less stringent compared to other types of financing.

Equity financing is a way to raise funds by selling ownership in your company. In exchange for money from investors, you give them a portion of ownership and control in your business.

Using equity financing has benefits, particularly the experience and mentorship that the investor brings. This being said, however, there’s one big drawback that often excludes this type of financing as an option for small business owners—funding through equity isn’t a one-and-done transaction.

With this type of business funding, you’re committing to a long-term relationship with an investor who has a serious interest in the success or failure of your business. Ceding some ownership and influence over the company goes hand in hand with equity financing, so if that’s not something you’re ready for, you’ll want to opt for debt financing.

If you’re willing to put in the time to apply for them, many funding programs offer up small business grants that provide business financing that recipients don’t have to pay back.

Of course, these grants are competitive—you’ll need to put in the time and effort to find the right grants and submit applications to access one. This being said, there are hundreds of business grants out there—federal, state, local, private grants, and more—so if you think this funding avenue could benefit your business, it’s certainly worth exploring.

If you’re fortunate enough to have friends or family members who can invest in your business or lend you money, it’s a great opportunity. Because of your personal relationship, your friends or family members are likely to offer more comfortable terms on an investment agreement than you’d receive from an angel investor, bank, or online alternative lender.

Plus, depending on how your friend or family member wants to make the arrangement, you can consider proposing either debt or equity financing from them.

If you’re not familiar with these kinds of funding opportunities, here’s the basic idea: You get funding for your business needs from small contributions made by a group of people. Each individual contribution adds up to a bigger total, which amounts to the business funding you require.

Through a crowdfunding platform, you share your vision for what you’ll do with the funds, set a funding goal, and then use social media and other marketing avenues to encourage potential donors to support your campaign. Because most crowdfunding platforms work on an “all or nothing” basis—that is, you must reach your funding goal to receive any cash at all—it often works best for those with more modest business funding requirements.

At the end of the day, deciding what small business funding option is right for you comes down to a number of factors that are specific to you, your business, and your financial needs.

The good news is, there are currently more choices than ever for businesses that require funding. Whether you look into debt financing, equity financing, or a more creative funding solution, you’ll have a variety of options to explore, compare, and consider.