Building your business requires capital, and, fortunately, there are plenty of funding options for small businesses from which to choose. But depending on how long you’ve been in business, your annual revenue, business credit history, and other factors, some options may be a better fit than others.

Here are 11 of the top funding options for small businesses, how they work, and how you can obtain them.

Traditional Bank Loans

Commercial banks can offer mid-to-long-term loans that you can use to fund an expansion, a major project, or other significant financing need. Some banks may even offer working capital loans that you can use to cover day-to-day operations, payroll, and other short-term expenses.

Traditional bank loans typically come with low-interest rates but may require that you provide collateral when you apply. They’re also best suited for small businesses that have been operating for several years and have consistently high annual revenue and good business credit scores.

As a result, it can be difficult to get approved if your business is relatively new or you haven’t had the chance to build your business credit history yet. Also, keep in mind that it can take several weeks or even months to receive funding, so this isn’t a good option if you need cash right now.

If you think a bank loan is right for you, check with your existing bank to see what it offers. Then, take some time to shop around and compare interest rates, repayment terms, loan amounts, collateral requirements, and other features that are important to you.

SBA Loans

SBA loans are loans that are partially insured by the U.S. Small Business Administration. There are several different types of SBA loans, including mid-to-long-term installment loans, lines of credit, real estate loans, and microloans. Research your options to determine which one is the best fit for your needs.

In most cases, SBA loans require that you’ve been in business for at least two years with an established business credit history and strong revenues. However, you may be able to get approved for a microloan if your business is newer.

That said, these loans are offered by private lenders, not the federal agency itself, and individual lenders may have their own eligibility criteria on top of the SBA’s. 

If you do qualify for an SBA loan, you’ll enjoy low-interest rates and long repayment terms compared to most other funding options for small businesses.

If you think an SBA loan is right for you, use the SBA’s Lender Match tool to get started. 

You’ll answer a few questions about your business and your needs, which can take as little as five minutes. Then, you’ll get an email within two days with contact information from interested lenders. From there, you can compare rates, fees, and other terms between lenders and apply for the one that offers the best deal. 

Note, however, that SBA loans can take a few months to complete, so they’re best suited for long-term needs.

Small Business Grants

A grant is free money that may be available to both new and existing small businesses. You can typically find small business grants through federal and state agencies, as well as some private companies and organizations. Here are just a handful of places to find them:

• Grants.gov
• Small Business Innovation Research and Small Business Technology Transfer program
• U.S. Department of Agriculture Rural Business Development
• U.S. Economic Development Administration
• Small Business Development Centers
• Minority Business Development Agency Centers

FedEx, the Accion Opportunity Fund, Patagonia, and Visa are examples of private companies and organizations that also offer grants.

The great thing about grants is that it is money that you don’t have to repay. However, each program has its own set of eligibility requirements, so not all small business owners will qualify. Also, depending on your needs, some programs may not offer enough cash to make it worth your while.

Take your time to research grant opportunities and determine if it’s the right path for you, and make sure your application stands out, as you’ll be competing with potentially hundreds or even thousands of other small businesses.

Online Loans

Online lenders typically offer short- to mid-term loans that you can use for short-term needs as well as for growth and expansion. 

Compared to traditional banks, online lenders don’t have the same stringent requirements, so it’s possible to get approved in some cases if you’ve been in business for less than a year. Additionally, some lenders can fund your loan within days, making it a better option if you need capital sooner rather than later.

However, requirements can vary from lender to lender, so shop around and compare several options before you submit an application.

Also, keep in mind that because online loans are easier to get than traditional bank loans, that typically means that they also charge higher interest rates and fees.

 If you’re going for a loan with a shorter repayment period, between one and three years, it’s crucial that you make sure your business can afford the monthly payments and that the interest and fees are worth it to help your business operate and grow.

Online lenders may not require that you have established business credit, but they may require a personal credit check and a personal guarantee to ensure payment if your business fails. 

Crowdfunding

If you’re just starting out and trying to get a product funded without borrowing any money, you may consider crowdfunding through popular websites like Kickstarter and Indiegogo.

Here’s how it works: start by developing a prototype for your product and create a video showcasing what it can do, which problems it solves, and why consumers should buy it. In return for pledges from prospective backers, you’ll provide early access to the product you’re trying to sell.

You may even offer discounts on bulk pledges or additional products or services if backers are willing to pledge more money.

Crowdfunding can be worth considering if your small business is brand new and you’re not sure you’d qualify for an affordable loan. It can also be a good alternative to borrowing money even if your business is established and you simply don’t want the headache that comes with debt. 

That said, your product idea needs to be appealing enough to garner interest from potential backers, and you’ll need to flex your creativity muscles with the video. 

If you’re not certain where to start, sift through some of the current campaigns on crowdfunding websites to get an idea of what works and what doesn’t.

Credit Union Financing

Similar to traditional bank loans, credit union loans can provide several funding options for small businesses. In addition to term loans, credit unions may also offer lines of credit, SBA loans, startup loans, working capital loans, business credit cards, and more.

Interest rates and fees are generally low compared to other options, including some commercial banks, and repayment terms can vary by loan type, but monthly payments can be manageable. 

As with commercial banks, though, credit unions typically have stricter eligibility requirements, such as having at least two or more years in business, a strong business credit history, a solid business plan, consistent revenue, and more. 

Additionally, you’ll typically need to be a member of the credit union that you want to apply with, though you may have the option to join during the application process in some cases. 

Depending on your situation, you may look for credit unions that serve specific communities, such as the military, certain industries, or other organizations.

If you’re thinking about applying with a credit union, look at local institutions in your area and branch out from there. Review the requirements and whether you can join while applying or if you need to have an established relationship with the credit union first.

Venture Capital

If you’ve been in business for a while and are looking to expand aggressively, taking on a venture capital investor may be a great alternative to borrowing money. 

In exchange for equity in your company, venture capitalists may provide much-needed capital to fund your growth. Working with a venture capitalist can also open up opportunities for you to network and take advantage of experience and expertise in your field.

That said, the top priority for venture capitalists is to maximize the return on their investment. So, they may ask for more equity than you’re willing to give, and some may even want to take control of the business and make decisions that you don’t necessarily agree with.

Venture capitalists will also be looking for an exit strategy once your business has achieved its goals. This may be through an initial public offering, acquisition, or some other type of liquidity event. If you’re not planning on any of those things, venture capital may not be the right fit for you.

You can find venture capital through your connections with other entrepreneurs and business brokers.

Loans from Friends and Family

If you’re just getting started, it can be difficult to find lenders willing to provide funding for your business idea. Even if you can, a lot of the funding options for new small businesses have short repayment terms and high-interest rates and fees.

Instead, you may consider asking family members or friends to provide some seed money for your business idea. You don’t have to worry about a credit check, you can get flexible repayment terms, and you may have a low-interest rate or no interest at all, depending on how you work the agreement.

That said, borrowing money from relatives or friends can create a difficult situation if you’re not careful. It’s crucial that you create an official agreement with the person lending you the money and that you stick to your commitment to repay the debt, even if your business idea doesn’t work out.

If you’re not confident in your idea or you can’t pay back the debt unless your business succeeds, it may not be worth risking your relationship over money.

Take your time to consider your options and overcommunicate with the person you’re thinking about borrowing from to ensure a good experience for everyone involved.

Credit Cards

Business credit cards can be used for day-to-day business operations and some larger purchases but aren’t a good fit for long-term expansion and growth needs.

One of the biggest benefits of business credit cards is that you can get approved even if your business is brand new and you don’t have a business credit history. Card issuers will run a personal credit check and require a personal guarantee to determine your eligibility.

Also, there are credit cards available for business owners across the credit spectrum, making them easier to get than many other funding options for small businesses. 

Depending on which card you get, you may also get to enjoy a sign-up bonus, ongoing rewards in the form of cashback, points, or miles — which you can use to benefit your business or for personal use — and other benefits that can save you money and make it easier to run your business. 

Shop around and compare cards to find the one that best suits your needs and preferences.

That said, business credit cards can have interest rates in the mid-to-upper teens and even upwards of 20%. If you’re not careful, credit card debt can get out of control and make it difficult for you to manage your short-term expenses. 

If you can, consider paying your balance in full every month to avoid interest charges.

Angel Investors

Similar to venture capitalists, angel investors can offer capital as an investment in exchange for equity in your business. There are, however, some differences. 

First, angel investors typically work alone while venture capitalists are part of an organization. Also, angel investors tend to work with startups that are in their early stages, whereas venture capitalists may want a longer track record and a more certain growth opportunity.

But like venture capitalists, angel investors may want more control of your business than you’re willing to give up, and they’ll be prioritizing an exit strategy, which may not work with your plans for the company. 

With that in mind, if you’re interested in taking on an angel investor, you can find one through websites like AngelList and Angel Investment Network, or even LinkedIn.

Business Lines of Credit

A line of credit may be worth considering if you want ongoing access to financing rather than a one-time payment with an installment loan. 

Similar to a credit card, a business line of credit offers a revolving credit line that you can use, pay off and reuse over and over again throughout the account’s draw period. Once that draw period ends, you’ll pay off any remaining balance over a set repayment period.

Business lines of credit can vary wildly in terms of interest rates, repayment plans, fees, collateral requirements, credit criteria, and other features. If you can get one from a bank or credit union, you can expect lower interest rates in exchange for stricter eligibility requirements. 

But if you go through an online lender, you may face higher interest rates and fees and shorter draw periods and repayment periods. 

Take your time to shop around and compare business lines of credit from multiple lenders before you settle on one.

The Bottom Line

Obtaining funding for your business can be a daunting task, but there are several ways to get the capital you need, whether it’s for short-term needs or long-term plans. 

Take your time to research each option to determine which one is best for you and your business, then shop around and compare different lenders to make sure you get the best deal available to you.

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