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Best Small Business Funding: Where To Get Financing

If you’ve got a budding business idea on the back-burner of your brain, there’s no time like the present to breathe life into your brilliant concept. Many people, however, aren’t sure how to get funding for a business, and they let that prevent them from ever taking any action. Fortunately, finding a source of business startup funding or financing is now easier than ever before. This article breaks down the basics of everything you need to know.

What Is Business Funding and Financing?

Although the terms business funding and business financing are often used interchangeably, they do have their own distinct definitions. Generally, business funding refers to money given to a business for a specific purpose with no requirement for repayment, whereas business financing refers to money that a business owner borrows and agrees to repay in addition to a predetermined interest rate.

How Does Funding Help a Business?

Finding a mutually beneficial arrangement for small business funding can be a godsend for cash-strapped startups at any stage. And depending on the specific nature of the small business financing you make use of, you may be able to use those funds in any number of ways, including:

 

  • Rent for office space and utilities
  • Online advertising and other marketing efforts
  • Employee payroll and travel expenses
  • Raw materials used to produce products
  • Business inventory and office supplies

Types of Small Business Funding

As mentioned earlier, there are two primary ways to fund your startup: business financing and business funding. Business financing is sometimes referred to as debt financing or debt funding because an entrepreneur assumes the responsibility of debt in exchange for the loan. Business funding, on the other hand, often comes in the form of equity funding, in which an entrepreneur offers an ownership stake to whichever issuer provides the funds.

Debt Funding vs Equity Funding

Here are a few of the pros and cons of debt funding and equity funding.

Debt Funding Pros

  • You retain complete financial control of your business
  • Debt funding is flexible with almost no oversight regarding your spending
  • Debt funding is easy to qualify for and practical for most businesses

Debt Funding Cons

  • You have to pay back the debt even if your business fails
  • Over time, interest rates can add up to significant sums
  • Debt can be stressful when not managed properly

Equity Funding Pros

  • Most arrangements don’t require borrowers to repay funds
  • You could have access to insightful mentors in your industry
  • Funds could put you on the fast-track to success

Equity Funding Cons

  • You’re giving up some ownership of your company
  • You have to answer to other people
  • Only businesses likely to experience exponential growth will attract investors

Best Options For Funding A Small Business or Start Up

Modern entrepreneurs have an extensive selection of options when it comes to funding their business. And although the numerous avenues can seem intimidating at first, each is relatively easy to understand. Here’s a quick look at the most common categories of funding along with suggested lenders and typical pros and cons.

Business Lines of Credit

By allowing borrowers to access and repay funds on an ongoing basis, a business line of credit is more similar to a credit card than a traditional business loan.

  • Kabbage — Kabbage offers loans from $1,000 to $250,000 with terms of 6, 12, or 18 months and interest rates ranging from 1% to 10%.

Business Line of Credit Options

Term Loans

Term loans are lending arrangements with predetermined payment dates and amounts, which makes budgeting easy by eliminating any guesswork.

  • Fundation — Fundation offers loans from $20,000 to $350,000 with terms from 1 to 4 years and interest rates ranging from 7.9% to 28.9%. 
  • Funding Circle — Funding Circle offers loans from $25,000 to $500,000 with terms from 1 to 5 years and interest rates ranging from 5.5% to 27.9%.

Compare Business Loans

SBA Loans

The US Small Business Administration is the preferred lending source for many Americans, although not all applicants should expect to be approved for one.

  • SmartBiz — SmartBiz offers loans from $30,000 to $350,000 with a standard term of 10 years and interest rates ranging from 6.5% to 8.75%.

SBA Loan Options

Short Term Loans

For business owners who only need to borrow a small sum or who plan on eliminating their debt as soon as possible, short-term loans are often a great way to go.

  • OnDeck — OnDeck offers loans from $5,000 to $250,000 with terms from 3 to 24 months and interest rates ranging from 8.5% to 79%.
  • QuarterSpot — QuarterSpot offers loans from $5,000 to $200,000 with terms of 9 to 18 months and factor fees ranging from 1.11 to 1.38.

Explore Short Term Business Loans

Invoice Factoring

If your business relies heavily on on-time payments from your customers, invoice factoring is a lending arrangement One sentence about invoice factoring.

  • Fundbox — Fundbox offers loans from $1,000 to $100,000 with terms from 3 to 6 months and interest rates that compound weekly and range from 0.5% to 0.7%.
  • BlueVine — BlueVine offers loans from $20,000 to $500,000 with terms from 1 to 12 weeks and interest rates ranging from 0.4% to 1% charged as a weekly discount.

Invoice Factoring Options

Equipment Financing

Many businesses rely on expensive machines to keep their company in operation from one day to the next, which is why equipment financing provides a feasible means to cover such significant expenses.

  • Lendio — Lendio offers startup loans from $500 to $750,000 with terms up to 25 years and interest rates starting at 0.17%.

Banks

One of the first places many new businesses owners turn to for financial needs, banks remain a common (though not especially competitive) option in today’s market.

  • PROS: Big banks offer easy application processes and make it convenient to access funds
  • CONS: Interest rates are higher than credit unions; terms and generally inflexible

Credit Unions

Often grouped with traditional banks, credit unions can provide qualified small businesses with low-interest loans that meet their needs.

  • PROS: Better customer service than banks; often able to provide more flexible funding
  • CONS: CUs may charge fees that traditional banks do not; online services can be limited

Business Grants

Numerous government programs and nonprofit initiatives exist to help emerging businesses secure the funds they need to grow without requiring them to repay the amount.

  • PROS: It’s free money as long as it’s used in accordance with the grant’s terms
  • CONS: Applications can be lengthy and the odds for approval could be low

Personal Loans

You likely already have a relationship with at least one banking institution, which likely offers a personal loan you could use for business purposes.

  • PROS: Lower interest rates than credit cards and other options; virtually no restrictions
  • CONS: Failing to make on-time payments can affect your personal credit for years

Compare Personal Loans

Angel Investors

Increasingly common in the startup era, angel investors are wealthy individuals who choose to back startups they believe in.

  • PROS: Flexible, minimum-oversight arrangements with great networking opportunities
  • CONS: Sometimes based on who you know; some investors may expect instant results

Venture Capitalists

Venture capitalists are similar to angel investors, though VCs are more like mutual funds in that they involve several different inventors rather than an independent “lone wolf.”

  • PROS: The money is yours to keep and can help you grow quickly
  • CONS: Applying for VC loans is a time-consuming process and competition can be high

Business Credit Cards

Among the most popular option for many modern business owners, credit cards are easy to acquire and use, but, depending on your creditworthiness, they can be quite costly in the long run.

  • PROS: Flexible; accepted nearly everywhere; easy to qualify for
  • CONS: Credit limits are usually lower than bank loans; high-interest rates may apply

Crowdfunding

One of the more modern methods on this list, crowdfunding harnesses social media and the power of the internet to help startups acquire the funding they seek.

  • PROS: If your concept goes viral, you could end up with a boatload of dough
  • CONS: Platforms may require campaigns to reach a threshold to access the funds

Conclusion

Now that you know the difference between business funding and business financing — and some popular providers of both types of arrangements — compare your options to find the most appropriate source of funds for your specific situation.

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