11 Financing Options for Small Business Owners

12 min read

From starting a company and equipping it to keeping it afloat, there are many reasons why you might need more money for your small business. Seeing as how your financing options are numerous, it is important to find the right solution to your problem. Keep in mind that traditional bank loans are no longer your only choice and check out some alternative options. Have a look.

1. Government grants

You should look into whether your government provides any grants for small businesses. For example, in the US, the Small Business Association (SBA) offers several programs. Among them, you can find the 7(a) Loan Program which can help you expand your business. Real Estate and Equipment Loans are used to build or purchase new offices as well as necessary equipment. Additionally, microloans are usually smaller amounts of money which are to be spent on working capital, equipment and supplies. However, these might be hard to obtain so look into the requirements carefully and if you cannot get a grant, you might want to opt for a loan.

2. Short-term business loans

In case you need money fast and know that you will be able to pay it back in 12 months, you can go for a short-term business loan. They can provide you with anything from $2,000 to $500,000. You can have the funds in a single day. This is great for covering payroll and inventory needs. There are some requirements you must meet, but these proceedings are quite straightforward and can be done through a bank or an online lender.

3. Medium-term business loans

Similar to short-term loans, medium-term business loans range from $5,000 to $500,000. They are usually used to purchase equipment. However, they take a bit longer to fund, about a week. Moreover, these loans are paid back over a period of one to five years. Keep in mind that both of these options require a good credit score.

4. Equipment loans


As the name says, these loans are used for purchasing equipment, including machinery and vehicles. Seeing as how the equipment serves as collateral, this makes it easier to qualify, which means that even startups can apply for this type of financing. It usually takes one to three weeks to fund and can be worth a million dollars in some cases.

5. Invoice factoring and financing

In case you are facing a cash flow crisis, there are several financing paths you can take. Invoice factoring is one of them. In case you have some customers that are late on their payment, you can find a factoring company that will buy the invoice from you; however, you will not receive the full amount. Invoice financing is a similar option which works like revolving lines of credit and does not require you to sell your invoices.

6. Business lines of credit

This type of financing works like a credit card. You have a set limit of money you can borrow (for example, $100,000) and you can draw and repay the money whenever you can. You just have to be careful not to exceed your limit. Online lenders usually have looser qualifications that traditional ones, so look into what works best for you.

7. Angel investors

There are also people (called angel investors) that are willing to fund a business in exchange for equity. However, these people can sometimes be hard to find. Furthermore, they get many proposals but invest in only a few. You should approach them with a solid business plan, know what you need from them and what you are willing to give them.

8. Crowdfunding

Nowadays, there are many crowdfunding platforms, such as Indiegogo and Kickstarter. This approach involves a lot of work as you need to set up your campaign, but it can also bring you great success. Opting for crowdfunding means that you need to create a unique and detailed pitch to attract investors. There are several types of crowdfunding. Charity-based crowdfunding is when the investors give you money without getting anything in return. If you provide your investors with a product or subscription, then it is rewards-based. Giving the investors a share of your company is equity-based crowdfunding. And if it is debt-based, where you have to pay them back, then it is basically peer-to-peer lending.

9. Peer-to-peer lending

P2P lending is a type of lending where there is no middleman, such as a bank. This usually requires you to register on a platform specialized for matching lenders and borrowers. You will be assessed based on your credit score. If you seem like a risk, you might be faced with higher interest rates. Once you have a few options, you can pick the one that suits you most. In addition, applying for these loans is typically much simpler and faster than for traditional ones. If you do not qualify for a bank loan, give this option a go.

10. Personal loans

A lot of times, people cannot qualify for a business loan. If this is the case with you, applying for personal loans is also an option. A personal loan can be obtained from banks, credit unions and online lenders. Your personal credit score will be evaluated, so make sure to improve it any way you can before you apply. However, when applying for a personal loan, your personal assets could be used as collateral if you fail to pay back the debt.

11. Friends and family

A quite popular way of Financing a Business is turning to relatives and friends. This can be a good option as you know the people who will be giving you money, and more importantly, they know you. They know whether you are reliable and whether they should invest in your business. You should keep this professional, however, and present them with a proper business plan. Going down this road can mean lower interest rates and a more flexible repayment schedule. On the other hand, this might lead to strained family relations, unwanted opinions and scrutiny of your business operations.

As you can see, when financing a business, there are a lot of choices you can make. You can even combine several of these. Just make sure you think everything through and find the option that is best for your business.

Check Also

5 ways to be more productive when working from home

If you work from home, it’s critical to find ways to be efficient to keep your work …