8 Different Kinds of Small Business Financing

8 Ways to Fund your Small Business

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Financial pressure, and managing your capital and expenses, is one of the biggest challenges that most small business owners face today.  It can be exhausting and difficult to obtain the funding you need for everyday operations, expansion and growth, and to take advantage of opportunities.  Small business loans are a common source of funding, but are by no means the only option available.

Small business financing through banks, traditional lenders, and new, non-bank lending companies offer a number of different credit and loan products for small businesses.  And, there are other options available, too, that are less common but also may be viable funding sources for your small business.  We’ll discuss eight different ways to finance your small business in this guide.

Different Types of Small Business Financing

In general, there are 8 primary ways that are widely recognized to finance your small business.  Some of these are naturally more common and popular than others.  All have their own advantages, disadvantages, and different types of qualifications.  Some may be available only from private sources, while others are readily available from small business lending firms or banks.

These options include:

  • Small Business Loans
    • Short-term Small Business Loans
    • Small Business Loans for Women
    • Bad Credit Business Loans
    • Secured or Unsecured Small Business Loans
  • Business Lines of Credit
  • Merchant Cash Advances/MCA Loans
  • Business Credit Cards
  • Personal Loans
  • Equipment Financing
  • Invoice Factoring
  • Crowdfunding

There are other ancillary funding products such as debt consolidation loans and debt refinancing, but those are more aimed at helping small businesses manage existing debt and save money in the long run rather than providing direct, usable financing for working capital.

Types of Small Business Loans

As noted above, there are several different types of small business loans available.  While all function on generally the same principles – money is provided up-front and repaid over time with interest – the qualifications, details, and other aspects may vary quite a bit.  One of the biggest factors in small business loans is whether or not they are secured or unsecured.

A secured small business loan requires collateral to be put up as a guarantee of repayment on the loan.  This can take the form of assets like property, cars, or equipment. Unsecured loans do not require collateral.  Small business financing experts suggest that unsecured loans are more advantageous to small businesses, as they have a somewhat higher interest rate, but present a much lower risk to small business owners in the event of default on the loan – they won’t lose their house, building, equipment, or other assets.

Most of the other differences in the type of small business loans available amount to differences in the loan duration, repayment terms, qualification requirements, and so on.  Most non-bank lenders offer a number of different options, including small business loans for the traditionally underserved market of women-owned businesses, businesses with bad credit, and much more.

Merchant Cash Advance/MCA Loans

Merchant cash advances or MCA loans are another popular small business financing option, particularly for working capital and cash flow purposes.  MCA loans provide an up-front lump-sum payment to the business, which is then repaid based on credit card sales.  The repayment isn’t fixed to a calendar date, but rather is dependent on the credit card sales.

So, if businesses face a downturn or slow period, the repayment decreases.  This makes repayment much more manageable for businesses with highly variable income, cyclical or seasonal sales patterns, and similar.  They’re well-suited for sales-driven businesses and are accessible even with bad credit.

Working Capital Options

Other working capital small business funding options include business credit cards and business lines of credit.  A business credit card account works much the same as a personal credit card, with a spending limit, one or more cards provided, and a minimum monthly payment on the outstanding balance, interest charged on the balance, and the ability to borrow up to the limit on the account.

Interest rates tend to be fairly high, though a business credit card is a viable small business funding option for everyday purchases and emergencies.  It is not suitable for larger purchases, payroll, and other similar needs.  For those kinds of expenses, a business line of credit is a better working capital option.

A business line of credit is similar to a business credit card account, but it doesn’t come with a card.  Rather, it’s access to cash, up to a credit limit, that can be drawn against in as little or as large an amount as desired by the business owner.

This type of small business funding allows businesses to borrow what they need against the line, repay it over time, and borrow against the line again and again as needed.  It provides a revolving credit facility for expenses and funding needs, rather than a purchase-based model as with a credit card.  The limits tend to be much higher, and the interest rates much lower as a result.

Other Funding Sources

There are still other options for small business funding and working capital needs, which are typically not available from small business lending firms, but can still provide meaningful help in funding your small business.  Crowdfunding via online platforms like Kickstarter, GoFundMe, Patreon, and other means have become popular sources for seed money.  Also, there is always the potential to seek money from a venture capital firm, which can result in raising significant capital for new ventures.

Equipment financing (essentially a form of deferred payment or loan, where equipment is purchased or leased and paid off over time) is available from many major equipment manufacturers and sellers, as well as banks and other third parties.  This can be seen as similar to the kind of financing you can obtain as a consumer making appliance or home purchases.  It spreads payments out over time, at the cost of additional interest on the purchase.

This can ease the cost associated with major equipment purchases, such as machinery, vehicles, and so on.  Finally, invoice factoring can sometimes be useful.  Invoice factoring involves the selling of outstanding invoices, at a discount, in exchange for immediate payment from the purchaser.  It’s a good option for businesses with a lot of receivables outstanding, who need cash right away.

Our Recommended Source of Small Business Financing

For small businesses in the US in need of financing, we recommend BizFly Funding.  They’re a US-based non-bank lender focused solely on small business financing.  They offer a wide range of options – including most of the types of funding we’ve highlighted in this guide.  They also offer a quick approval process, fast funding in as little as 1 business day, and very generous, minimal qualification requirements for most small business customers.  If you are in need of small business financing, we strongly suggest you take a look at BizFly Funding – you have nothing to lose, and everything to gain!


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ALSO READ: Guide to Short-Term Small Business Loans


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