Great business ideas are a dime a dozen. If you want to get serious about turning your dream into a reality and starting your own business, you’re going to need small business funding. Fortunately, there are several funding options for small businesses, from banks and online business lenders to small business grants.
The first step is to learn about what’s available to you so you can move forward in making the best financial decision for your new company.
Let’s take a look at 6 ways that small business owners like you can get funding and what you need to qualify.
1. Online Lenders
In today’s digital age, online lending has become a popular alternative to traditional banks, and it’s no wonder why. Borrowers now have an abundance of options when it comes to lenders and aren’t limited to brick-and-mortar financial institutions. The application process is fast and simple, with everything being conducted online, and you’re much more likely to encounter lenders offering looser requirements.
Here are a couple of online lenders we recommend for small business loans:
BlueVine specializes in delivering fast funding for small businesses nationwide with their three business loan products: revolving lines of credit for the best in flexibility, term loans with zero origination fees and fixed rates, and invoice factoring for speedy advances on any outstanding invoices your company has.
Reliant is an online lender that’s been around since 2008 and has facilitated over a billion dollars in funding. They boast small business loans that are fast, simple, and flexible. Their application process takes less than 30 seconds to start seeing offers and financing options come with a fixed cost.
Online lenders are good for: Businesses looking for fast financing and looser requirements.
- Reputable marketplace with solid customer service
- A lender network of over 30 lenders and partners
2. Credit Unions
When shopping around for small business loans for your company, don’t forget to check credit unions. Not only have they increased their lending for small businesses in the past decade, but these nonprofit financial institutions are known for offering better rates and lower fees than big banks.
While banks look to maximize their profits in the name of their shareholders, credit unions serve their members, which is why they can offer competitive rates on their products, including small business loans. With that said, credit unions also have their drawbacks, such as their technological capabilities. Since they hold far fewer assets than banks, they have less money to spend on apps and online banking.
Credit unions are good for: Businesses with excellent credit looking for lower rates.
While banks often have the strictest requirements for small business loans, they also have plenty of advantages. Unlike many online lenders that are newer to the lending game, big banks have brand names that you’re more likely to be familiar with and trust. Maybe you already have an account open with a bank and prefer to do all of your business in one place.
While you can find lower rates at shorter terms with banks, they tend to only offer large business loans to well-established companies. You would also need good credit to get approved for a business loan.
Banks are good for: Established businesses with a strong track record.
SBA loans are another great way to finance your business. Since they’re backed by the government, SBA loans are less risky for lenders to offer, so you can expect more flexible business loan terms and lower interest rates.
Just keep in mind that applying for an SBA loan is a process that takes weeks, even months, unlike opting for an online lender which can take just a day or two. To get approved for an SBA loan, you’ll need excellent credit and strong business financials. You may even need collateral, depending on the lender.
Good for: Businesses that have trouble qualifying for traditional business financing.
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5. Small Business Grants
Unlike the other lending options on this list, small business grants are essentially free money awarded to very specific businesses—typically companies that will further the goals of federal, state, or non-profit organizations. If your company falls into this category, a small business grant could provide the funds you need to grow.
There are tons of grants available but you’ll have to do your research. Most have strict requirements that must be met. You can get started by visiting Grants.gov to see if you qualify for a small business grant.
SBA loans are good for: Businesses that exist to serve the public good, such as a non-profit.
6. Crowdfunding Campaigns
Another great small business funding opportunity is through crowdfunding campaigns using platforms like Indiegogo or Kickstarter. So how does it work?
Creating a crowdfunding campaign allows your business to receive small contributions made by individuals or investors which can add up to a substantial total. While it may not quite amount to the larger funds you’d receive from other alternatives such as banks or online lenders, crowdfunding allows you to set a funding goal, share your company’s vision and how you’ll use the funds, and capture the eye of individuals who can help your business grow.
Crowdfunding is good for: Businesses with a concept or product people will want to fund.
Small Business Loan Requirements
In your search for small business loan funding, you’ll find that the requirements vary depending on the lender. Some lenders place a heavy emphasis on performance and years in business while others care more about your credit score and credit history.
Here are a few factors to consider when applying for a small business loan:
- Credit: Lenders will always check the business owner’s personal credit score to determine how risky they are as a borrower. Start building your credit today to strengthen your business loan application.
- Cash flow: Lenders will also look at your business’s debt-to-income ratio when determining risk. The more cash flow and income you have, the better your chances are for securing a small business loan.
- Time in business: Small business loans can be difficult to acquire for newer businesses because many lenders only want to provide loans to those that have been in business for at least two years.
- Debt: Businesses that have too much debt will also have a difficult time getting a small business loan.
- Collateral: Lenders are more likely to lend you a small business loan if you back the loan with some form of collateral. Collateral-based loans are easier to get and can even get you lower interest rates.
- Industry: Your business’s industry is another determining factor lenders use to assess risk. Getting a small business loan will be easier for some industries than others.
A small business loan can be a great way to finance inventory, purchase supplies, and overall grow your business. While they can be difficult to obtain depending on the industry you’re in, your credit score, time of business, and cash flow, there are options.