11 Small Business Funding Options
Last updated Dec. 18, 2024
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 largely depends on what you need the capital for, but other factors—like how much capital you need and your willingness to take on debt—also come into play.
Between banks, online lenders, investors, and more creative avenues, you have a variety of sources to tap for funding your small business. Here are some of the best options.
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1. Long-Term Loan
Best for: Established businesses with strong credit
With a long-term loan, 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 or credit union, you need to have good or excellent credit to qualify. You also likely need to meet minimum annual revenue and time in business requirements.
Generally, long-term loans are one of the best small business funding options for owners:
- With mature businesses,
- Who want to borrow money for a long period of time (more than two years), and
- Who want a predictable monthly payment.
Term loans are ideal for financing business expansions, purchasing equipment or real estate, hiring staff, or refinancing other debt.
2. SBA Loan
Best for: Established, profitable businesses
The Small Business Administration (SBA) helps entrepreneurs get funding for business needs in the form of long-term, low-interest 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 and credit unions) to approve small business loan applications by guaranteeing all or part of the loans. For lenders, that means lower risk and higher reward.
SBA loans require you to meet a number of specific qualifications, including strong credit and proof of business profitability, and endure a lengthy application process. If you’re approved, the SBA lender determines your loan’s interest rate and repayment term—within certain boundaries set by the SBA.
Use our guide to find some of the best SBA lenders.
3. Short-Term Loan
Best for: Quick funding and/or businesses that can’t qualify for other options
A short-term business loan is very similar in structure to a long-term loan, except that it must be paid off much quicker, typically within 18 to 24 months. As a result, short-term loans are often smaller, more expensive, and require more frequent payments (daily or weekly) than their longer-term counterparts.
On the upside, short-term loans are some of the more accessible types of financing for a variety of business owners. They are often funded by online or alternative lenders that can provide same- or next-day business funding, and the qualifications you need to secure a short-term loan are much less stringent compared with other types of financing.
4. Business Line of Credit
Best for: Flexible funding that can be used on an “as needed” basis
A business line of credit essentially works like a credit card: You have a certain amount of capital that you can draw on when you need it—and you only pay interest on what you use.
Plus, once you pay back the funds you withdrew, you have access to all that cash again. This is why lines of credit are also called rotating or revolving credit lines.
With a business line of credit, you can buy inventory, manage 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.
5. Business Credit Card
Best for: Easy access to funding, even for young businesses
Business credit cards work much like personal credit cards, but they’re designed to be used solely for covering business expenses, plus they can come with business and employee-related perks. 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. Ultimately, business credit cards can be a useful financial tool for any business owner.
6. Equipment Financing
Best for: Purchasing specialized business equipment or machinery
Equipment financing, as the name implies, is a type of 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.
Typically you can get funded up to the total cost of the equipment you’re financing (and sometimes even beyond that full amount, to cover related costs like delivery and installation of the equipment). You own the equipment once you’ve paid off the loan.
7. Invoice Financing
Best for: B2B companies with money tied up in unpaid invoices
With this form of small business funding, an invoice financing company advances you up to 90% of the value of your unpaid invoices. When your client pays the invoice, you receive the remaining balance, minus fees. The fees are typically a small percentage of the amount of your invoice, charged each week the invoice goes unpaid.
If your business relies on customers paying their invoices, then you’re probably already aware that a late payment from a customer can 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 may be well worth the cost.
An added benefit of invoice financing is that the provider cares more about your customers’ repayment behaviors and credit history than yours and so won’t typically check your credit.
8. Equity Financing
Best for: Businesses with high growth potential
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 of your business.
Using equity financing has benefits, particularly the experience and mentorship that the investor brings. The one big drawback, however, is that 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.
Equity funding is best for high-growth businesses that have the potential to expand tremendously in the next two to three years. This type of funding is often a good option for businesses in the tech industry and typically comes from angel investors or venture capital firms.
9. Small Business Grant
Best for: Community-focused businesses, startups, and those experiencing hardship
If you’re willing to put in the time to apply for them, small business grants provide business funding that you’re not on the hook to repay.
Grants are highly competitive and often require a major investment of time and effort on your part to research opportunities that match your business circumstances and complete lengthy applications. But there are hundreds of small business grants out there—at the federal, state, local, and private level—so if you think this funding avenue could benefit your business, it’s certainly worth exploring.
A small business grant is an especially sound option for community-focused businesses, minority- or women-owned businesses, as well as businesses in technology or science industries, because many grants are designed specifically for these types of businesses.
10. Friends and Family
Best for: New businesses that need help getting started
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 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.
When turning to friends or family for funding for your business, it’s important to hedge your bets and protect everyone’s interests. If you and your friend or family member agree to a loan, you’ll want to write out terms for exactly how the loan will be repaid, in what increments, and over what period of time. If your friend or family member is making an investment in your business, you’ll want to clarify the exact percentage of ownership or profit share that person will take, as well as the role your investor will have in business decisions moving forward.
No matter which option you choose, and even if you don’t involve an attorney in the process, you should put the terms in writing and have each party sign so there are no questions later about exactly what was agreed upon.
11. Crowdfunding
Best for: B2C startup businesses
Crowdfunding helps you build the total amount of business funding you require through small contributions made by a group of people. Using 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. In this way, it can be a time-intensive and challenging way to secure funding for your business.
Because crowdfunding typically works 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. It’s also often a good fit for business-to-consumer businesses, especially those that can offer incentives for donations.
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