It takes money to make money, and it’s surprising how much you can do with just a little cash. For new businesses, a stack of working capital can help you to hit the ground running. Renting adequate office space, buying shiny new equipment, hiring top-notch employees—it all requires cash. Fortunately, there’s no shortage of business financing options at your disposal.
From government-backed SBA loans to Kickstarter crowdfunding, we’re exploring all your potential financing opportunities. New credit, poor credit, or no credit—there are options below for businesses of all shapes and sizes.
Funding Options for Your New Business
Below, we’re going to break down 8 funding options and what makes each of them unique and advantageous. First, let’s start with one of the most competitive small business loans to secure: an SBA loan.
With loans amounts up to $5 million and terms extending up to 25 years, there’s nothing small about this first-rate small business loan. The US Small Business Administration (SBA) guarantees a portion of these loans, giving lenders the confidence they need to finance small businesses with potential (even if they come with a bit of risk).
No, SBA loans aren’t too good to be true, but they’re not all sunshine and rainbows. You’ll find SBA loans are easier to secure than a traditional bank loan, but they’re known for being paperwork heavy with long delays to funding (this is the government we’re talking about). Plus, rejection rates tend to be higher than with direct online lenders.
Microloans are exactly what they sound like—tiny loans. Not quite as small as the $50 you borrowed from your buddy, but still very small. These loans typically range between $500 and $100,000. If your cash demands fall into this smaller scale, then a microloan could be just the thing your business needs.
Microloans are intended to help new businesses, the impoverished, minorities, and women—basically, everyone who struggles to obtain traditional financing. Because these loans are less profitable for banks, you’ll need to go through organizations like Kiva, the SBA, and Opportunity Fund.
Business credit card
A business credit card is pretty much the same thing as a personal credit card—just for your business. It provides quick, straightforward credit that’s flexible enough to deal with practically any business need: inventory, payroll, repairs, you name it. From big one-off purchases to your small everyday expenses, a business credit card supplements your company’s cash flow when you don’t have money in the bank to provide for your business needs.
If you’re struggling to get approved for a small business loan, a business credit card is a great go-to option. Using your card will give you the immediate capital you need, and it’ll help you start building your business credit so you can qualify for bigger, better loans down the road. That being said, make sure you can pay off your balance in full each month — otherwise, you could incur interest costs and rack up some serious debt. And let’s not forget about variable annual percentage rates, annual fees, and late payment penalties.
Wouldn’t it be nice if your customers all paid their invoices as soon as you sent them? Unfortunately, that’s not the case, and those unpaid bills can really eat into your cash flow. Fortunately, some lenders will pay cash to buy your outstanding receivables (it’s called invoice factoring or invoice financing).
That’s right—you get to sell your IOUs for instant capital. So, what’s the catch? Well, since the lender is now assuming the risk of not collecting the receivables at all, they’ll only pay you a percentage of what the invoice is worth. In the end, you may only receive 80% or 90% of what’s owed to you from your customer, but at least you get immediate cash on hand. Sometimes, that’s worth the price.
Crowdfunding is a relatively new phenomenon where you raise capital by asking a large number of people each for a small amount of money—sometimes with the promise of early access to prototypes, free products, or other SWAG. You’ll likely recognize the classic crowdfunding sites like Kickstarter, GoFundMe, and Indiegogo. Another option is a subscription crowdfunding model, like Patreon. With Patreon, supporters donate money on a recurring basis for continued access to premium locked content or direct communication with creators.
Friends and family
We’ve all borrowed money from friends or family at some point, and it’s always an option to help finance your business, too. While donations or IOUs are generally small, they usually come with little-to-no interest, zero paperwork, and loose repayment terms—not bad compared to your typical small business financing.
Of course, mixing business and personal life can get messy, so it’s best not to rely on this financing option unless you have to. Plus, borrowing money from your friends and family still has tax implications, and it won’t help build your business credit.
VC & angel investors
For many small business owners, the Shark Tank dream is the pinnacle financing opportunity. Angel investors and venture capitalists (VC) usually provide massive amounts of cash in exchange for equity in your business. Plus, they’ll often offer invaluable business advice and access to exclusive networks.
VC funding might look like free cash, but giving up equity is almost always more expensive when compared to debt financing (like the SBA loans and microloans we discussed). Your loans will get paid off (eventually), but equity costs you a percentage of your company—forever.
Grants are possibly the best financing option available for your new business. Grants are similar to loans, except you have no repayment obligations. So, yes, they’re essentially free money. Ironically, this is the biggest downside to grants—because they’re so enticing, every business fights for them, making it incredibly hard to win one. If you qualify for a grant, don’t hesitate to apply—just don’t put all your eggs in this competitive basket.
There’s no right answer to which option you should use to fund your company. Just like businesses, financing comes in all shapes and sizes, so you’ll need to decide for yourself which financing options best meets your needs. That answer may change over time, so whenever you need some extra capital, return to this list to see what’s possible.
Samantha Novick is a senior editor at Funding Circle, specializing in small business financing. She has a bachelor’s degree from the Gallatin School of Individualized Study at New York University. Prior to Funding Circle, Samantha was a community manager at Marcus by Goldman Sachs. Her work has been featured in a number of top small business resource sites and publications.