6 Business Funding Opportunities for Your Small Business

by Kieran Daly
May 14, 2024
6 Business Funding Opportunities for Your Small Business

As a small business owner, you have plenty to do when it comes to running a business, including finding financing to continue their operations. While using personal savings and reinvesting any profits into the business might help you get off the ground at the beginning, eventually you may need to seek other types of business funding. 

In this article, we’ll cover some of the different business funding options and their pros and cons as well as how to get business funding.

6 Types of Business Funding

Small businesses are the backbone of the American economy. Getting the funding to operate is essential to running a successful business. Here are six different types of business funding available to small businesses. 

1. Traditional Bank Loans

One of the most common methods of getting funding is through a traditional bank or credit union. Banks offer a variety of financing options, including business loans, with competitive rates. Many businesses will seek out funding from financial institutions  as they can provide a large amount of capital to cover a specific purchase like buying real estate or to help fund growth.  

And if you already have an account at a bank, you may be able to get more favorable terms. While loans can be flexible, you may be restricted as to what you can do with the funds.

Bank loans can also be difficult to qualify for, as you may need to be in business for a certain length of time. You’ll also likely need a strong personal credit score of 670 or more as well as a good business credit score

If you decide to apply for a loan with a bank, you’ll likely need to provide a lot of paperwork, including financial statements. It can take a while to get approved. In addition to getting charged interest on the loan, you may also need to pay for other fees, such as servicing fees and prepayment penalties. 

Pros of Bank Loans

  • Variety of loan options

  • Can work with your local bank in-person

  • Competitive rates

Cons of Bank Loans

  • Difficult and lengthy application process

  • Could be extra hidden fees

  • May not qualify with poor credit

2. SBA Loans

Another way to get funding is to apply for an SBA loan. These loans are backed by the U.S. Small Business Administration but issued by a private lender. If you fail to pay back your loan, the SBA (i.e., the federal government) covers the portion of the loan they guaranteed. Because of this, SBA loans generally have lower credit score requirements than a traditional loan as well as favorable terms and interest rates that are set or capped by the SBA. 

Depending on the type of loan you apply for as a borrower, such as SBA 7(a) or SBA 504 loans, you can get $500 to $5.5 million in funding for your business. The SBA even offers microloans for small business projects.

However, some loans can only be used for specific purposes. The application process for an SBA loan is also lengthy, as you need to be in business for a set amount of time and exhaust other financing options before applying.

Pros of SBA Loans

  • Term lengths and rates set or capped by the SBA

  • Various loan options

  • Good option for businesses that can’t get funding elsewhere

Cons of SBA Loans

  • Strict guidelines

  • Only available through SBA-approved lenders

  • Can take a while to get approved

3. Venture Capital

Besides getting small business loans, you can also get a venture capital firm to fund your business endeavors. With venture capital, or VC, private investors put money into startups or early-stage companies in exchange for equity or ownership in the company. They may also provide mentorship and guidance to help your company grow as well as networking opportunities. 

Venture capitalists generally like to have a substantial share of the company and be involved to protect their investments. The more the investor buys, the more say they have in your small business and how it operates.

To apply for VC, you’ll need to provide a detailed business plan and answer any questions about your business model, products, and operating history. The due diligence can often take months, and you may need to employ the services of a lawyer to help. If the venture capitalists decide to invest, they will pledge a certain amount that is paid out at once or in rounds, depending on the terms of the final agreement.

Pros of Venture Capital

  • Business expertise and guidance from investors

  • Possible to get access to a large investment amount

  • Able to get access to valuable networks

Cons of Venture Capital

  • Need to give up partial control of the company

  • Often high expectations of growth

  • Long and complex due diligence and negotiation process

4. Angel Investing 

Angel investing is similar to venture capital. While a venture capital firm is usually an established company, angel investors are usually a small group of investors or one wealthy investor who believes in the potential of the company. In many cases, they may be the only funding source for an entrepreneur. 

Angel investors will also often serve as mentors and make sure that you get the guidance to grow. Sometimes, they may be more hands-off or get really involved early on, then step back after a while. 

For small businesses, angel investors can provide funding when other conventional financing is not available. You’ll need to give angel investors equity and generally a seat on the board.

To find an angel investor, you’ll need to network and find wealthy investors who are looking for new ventures to invest in. You can participate in incubators, talk to other founders, and compete in startup events and pitch competitions.

Pros of Angel Investing

  • Can offer more flexible terms than venture capital

  • Potential for mentorship and connections

  • Faster decision-making than a VC firm

Cons of Angel Investing

  • Difficult to find

  • May have less capital than a VC fund

  • May not have as much expertise as a VC firm

5. Crowdfunding

Another way to get working capital is to raise money through crowdfunding. With crowdfunding, you ask people to contribute toward your small business. In exchange, you may offer them interest, equity, or a benefit or goods in exchange for funds.

There are many different crowdfunding platforms that you can use to raise money, depending on your objectives. For example, if you’re raising money for the inventory of a new product, you can launch a project on Kickstarter. Or you can connect with other investors on sites like Fundable.

In many cases, you’ll need to do a lot of marketing to convince people why they should invest in your company. You may need to pay for marketing efforts, such as ads, videos, and other fundraising efforts. 

Pros of Crowdfunding

  • Can get access to capital from a large pool of investors

  • Potential for viral marketing

  • Can get validation for new products through pre-sales or pledges

Cons of Crowdfunding

  • Highly competitive

  • Time-consuming to create and manage a campaign

  • Will need to pay platform fees

6. Funding From Online Lenders

Another way to get funding is from alternative lenders like Backd. Online lenders tend to have more flexible eligibility requirements. Some specialize in different types of lending, such as working capital advances or business lines of credit.

In general, you can find out if you qualify for funding very quickly. These types of lenders also often offer shorter repayment terms that are generally under five years. While it helps to have good credit, you may not need to have as high of a credit score compared to more traditional types of business financing.

Pros of Online Lending

  • Easy and quick application process

  • More accessible for those with a limited credit history or fair credit score

  • Flexible repayment terms

Cons of Online Lending

  • Interest rates may be higher than traditional loans

  • May not be able to get as of a high loan amount compared to other options

How to Get Business Funding

Raising funds for your small business can feel like a full-time job in itself. Here are some tips for navigating the funding world so you can spend less time asking for more money and more time focused on your business.  

Figure Out What You Need

The first step to getting business funding is to understand your business needs. You should have a clear idea of how much money you need and what it will be used for. For example, if you want to expand your business and open a second shop, you’ll need to calculate the upfront costs you’ll incur to get the shop running.

Other things to consider are whether you are willing to give up control of your company in exchange for funding and how long you want the loan terms to be. 

This will help you narrow down which business funding options to consider during the research stage.

Do Your Research

There are many loan options, so make sure to thoroughly research each one. Look at eligibility requirements to narrow down the ones that you can apply for. Consider the conditions of the loan, such as the loan term length as well as whether you can afford the monthly payments. 

Make sure to vet lenders before you apply, and talk to them beforehand. You can also look up reviews of lenders, or talk to other business owners in your area to find out about local small business grants or loan programs.

Gather Your Paperwork

Before you start the application process, you should make sure you have the necessary paperwork on hand. Look at the business funding options you’re considering and find out what will be required to apply.

You may need to have a business plan, business and personal financial statements that show cash flow and annual revenue, or copies of any business certifications or licenses. 

In some cases, you may need to have a personal guarantee or put up collateral. In that case, you’ll need the documentation, such as your personal credit score or legal documents of the collateral, like a mortgage deed.  

Consider Hybrid Approaches

You don’t need to just get one business loan to support all of your funding needs. You can also use multiple types of funding to support your small business.

For example, you might get a small traditional loan to help buy real estate but use a business line of credit from an online lender like Backd to cover your overhead during slower months. Or maybe you use a combination of a traditional loan and crowdfunding to buy new equipment. 

Combining multiple funding sources can help you get the money you need while potentially limiting the risks of being stuck with one large loan.

Get the Business Funding You Need for Your Company

There are various business funding opportunities to help your company get the financing it needs. Knowing how to get business funding can help keep your company expanding when the time is right. You have many options, such as getting an SBA loan, looking for an angel investor, or using an alternative lender.

If you decide an online lender is the right choice for you, Backd can help. With Backd, you can get a working capital advance of up to $2 million or get a business line of credit of up to $750,000 with unlimited terms. 

Apply today and find out if you qualify in just 24 hours.

What would you do with the right amount of capital?

Working Capital Advance

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Business Line of Credit

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