Financing can be the difference between success and failure for your small business.
Products ready to ship. Customers ready to buy. Just waiting on the capital to take it to the next level.
If you’ve been in business for any length of time, you know the feeling.
Here’s the good news: Business financing options and business loans are more plentiful than ever before. In a battle for the entrepreneur dollar, the big banks, alternative lenders, government programs, and fintech platforms all have products designed to appeal to startups and small business owners.
Finding the right funding solution just takes a little know-how.
In this guide, we will break down:
- Why financing options for entrepreneurs matter
- Top business financing options available to entrepreneurs
- How to choose the right financing option
- Steps to secure funding faster
Why Financing Options for Entrepreneurs Matter
Businesses are hungry for capital.
The Federal Reserve’s 2024 Small Business Credit Survey reported that 37% of firms surveyed applied for a loan, line of credit, or merchant cash advance in the last 12 months. That percentage is unchanged from the last survey but why would it change when there’s such a strong need?
The catch is that many entrepreneurs are still struggling to get the lenders they need to approve them. The landscape is much better now than it was just five years ago but there is still room for improvement.
Entrepreneurs who want to secure a business loan and know exactly what lenders are looking for have a distinct advantage. There are lots of options. Business owners who understand the nuances of business financing options and loans available to them have a leg up in the race for capital.
The bottom line is this: There is more money available now than at any point in history but it takes strategy to get it.
The Top Business Financing Options for Entrepreneurs
Every financing option available to an entrepreneur has its advantages. But some of those advantages line up better with certain situations than others. Let’s look at the most popular options for business financing:
The Traditional Bank
The bank down the street has been doing loans for entrepreneurs for years. In some cases, decades.
In terms of pure interest rates and repayment terms, they are tough to beat. They are also extremely difficult to get approved for a loan.
In our experience, larger banks are very selective with their lending. A smaller bank is probably your best bet if you have the numbers to back up your business.
The Small Business Administration (SBA)
The SBA exists to back loans made by approved lenders. This backing reduces the risk for the lender and allows them to offer lower down payments, longer repayment periods, and lower interest rates.
SBA loans have been around for decades. In 2024, the SBA made over 70,000 loans worth a total of $31.1 billion. That is a 22% increase in the number of loans approved from the previous year.
Alternative Lenders
Alternative lenders have disrupted the business financing industry in a big way.
Online platforms and fintech startups use technology to make the approval and disbursement of money fast. Some of them can get money into an entrepreneur’s account in less than 24 hours.
Interest rates are not as good. But alternative lenders are often happy to approve entrepreneurs that banks will turn down flat out.
Lines of Credit
Business lines of credit are exactly what they sound like.
The lender agrees to a maximum loan amount and the entrepreneur can draw down what they need from that amount at any given time.
This is especially useful for seasonal businesses that need to finance inventory buildups or manage cash flow issues.
Invoice Factoring
Cash flow gaps can be caused by clients who are slow to pay.
Invoice factoring remedies that problem.
Here’s how it works. The entrepreneur sells their unpaid invoices to a factoring company. That company provides an upfront payment of a percentage of the invoice’s value (usually 80-90%).
When the customer pays the invoice, the factoring company charges a small fee for their services and returns the balance.
Equipment Financing
This option is how it sounds.
Equipment financing allows a business to acquire equipment, vehicles, or technology. The item itself is used as collateral against the loan.
Equipment financing is attractive because it is often easier to get approved, the equipment secures the loan, and the payments are spread out.
How to Choose the Right Business Financing Option
The right funding solution is different in every situation. Here are some factors to consider when evaluating the options:
Purpose
If you need capital for working capital, equipment, or inventory the solutions will be different. Align the purpose for financing with the right type of solution.
Timeline
How soon does the money need to be in the account? Fast funding is the name of the game with alternative lenders. They take less time but offer higher interest rates than banks.
Cost
Interest rates are a fact of life for business loans. The lower the interest rate, the lower the monthly payment.
But there are times when higher rates make sense if the money needs to be there fast.
Requirements
Lenders all have their own requirements. Some look at credit scores. Others care more about revenue or time in business. Know what you need to qualify before you fill out an application.
Steps to Secure Funding Faster
Entrepreneurs have to do their homework if they want to get fast approval for financing. The first steps can make or break an application:
Get Documents Ready
The last thing a lender wants is to ask for a document only to have the business owner say “Oh, let me look for that….”
Tax returns, bank statements, profit and loss statements – all of this information should be available and in order before you apply.
Build Business Credit
It may sound odd that something as personal as credit could be built around a business. But it can be and it should be.
Pay vendors on time, keep lines of credit open, and establish lines of credit that can be reported to the credit bureaus.
Establish a Solid Business Plan
Lenders are worried about risk. They want to make sure that the money they give you will be paid back.
The best way to do that is with a solid business plan. You need to demonstrate where the money is going and how it will be paid back.
Shop Around
There is a reason lenders go into businesses and offer their services. Entrepreneurs should do the same.
If one place won’t give you the terms you want, move on to the next. All the lenders in the market have different conditions so shop them until you find the right fit.
Start Small
If you are a brand new business without a history, try to get a smaller loan.
It will be easier to get and having the track record of having a loan will help you secure larger sums later.
Final Thoughts on Business Financing Options
Access to capital has been one of the single greatest hurdles to entrepreneurs building successful small businesses.
But that is changing.
Bank loans, SBA loans, alternative lenders, equipment financing, and lines of credit are all available to the right businesses.
The trick is finding the right fit for your business.
And that, as they say, is what this guide is all about.
To recap briefly:
- Bank loans have the best rates and terms but are the hardest to qualify for.
- SBA loans have the security of government backing.
- Alternative lenders offer speed and accessibility.
- Lines of credit are ideal for ongoing financing needs.
- Invoice factoring frees up cash tied in unpaid invoices.
- Equipment financing lets businesses acquire the equipment they need without draining cash.
The entrepreneurs that win on capital are the ones that know their options. That means doing research, gathering the right documents, and going into a lender with confidence.
The money is out there. Go get it.
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