Picture this. You have a fabulous idea for a business. You decided to act on it, but where are you going to get the money to fund your dream? Business financing is a daunting task, but luckily, there are options.

Obtaining the necessary capital to support the initial growth of a small business is one of the most significant challenges owners face. There are many business financing options available, but none are “one size fits all,” below are the pros and cons of five of the most popular funding options.

For those looking to gain working capital for their businesses, it takes the right combination of work ethic, skill, and financing know-how to jump-start your latest entrepreneurial idea. Small business owners often rely on a combination of the following funding options to fit their individual needs:

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Alternative Loans

  • Typically offer online applications, make approval decisions in a matter of hours and providing funding in less than five days
  • Direct alternative lenders, lend money directly to small businesses, and lending marketplaces, which offer small businesses with multiple loan options from different lenders
  • Examples of alternative loan providers are Fundation, Kabbage, Fundera, and Fora Financial

What are alternative loans?

Alternative business funding is capital offered to small business owners by “non-bank” lenders. After the 2008 recession, bank lending to small businesses hit an all-time low, and lenders have yet to return to pre-recession levels for their small business loans today.

Due to the decline in bank lending, alternative lenders have stepped up to fill the gap, with more alternative business lenders available than ever before. Alternative lenders are particularly attractive to small business owners who don’t have an established business credit profile. It is necessary to shop around to research which lender provides the best fit for your small business.

What are the benefits of alternative loans?

Getting an alternative loan from a private lender is perfect if you want short-term credit and delayed payback. Typically, lenders extend loan repayments from six months to a year but depending on the type of loan you choose you may not have to pay the money back until you draw from the provided funds. These terms are ideal for small business owners who need available cash fast, as long as they have the means to repay it quickly.

Another perk of alternative loans is that most financing sources don’t require collateral. This fringe benefit removes the stress of losing valuable assets if you struggle to pay off the loan. With minimal paperwork, most private lenders can get money into your small business bank account within 48 to 72 hours after the initial application submission.

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SBA Loans

What are SBA loans?

Small Business Administration (SBA) loans are long-term loans partially guaranteed by the government. The SBA offers various loan programs that apply to the different needs small business owners have.

While the SBA offers several loan programs, it doesn’t supply the money. A bank will make the loan out to the small business in need, and take on what they typically consider a “high-risk loan,” since the SBA is backing it.

What are the benefits of SBA loans

One benefit of an SBA loan is their structure to include lower down payment rates and longer repayment terms. These allow businesses to keep their cash flow for operational purposes by spending less on debt repayment.

SBA loans are commonly used to launch a new business or expand an existing business. The ultimate purpose of the SBA is to set you and your small business up for success. The top advantages of SBA loans include:

  • Up to 90 percent financing
  • Financing from $5,000 to $5.5 million
  • Fixed and variable rate options
  • Lowest interest rates available
  • No balloon payments
  • Terms from 7 to 25 years
  • Personalization for your needs.

hand presenting a credit card

Small Business Credit Cards

What are business credit cards?

Business credit cards are bank cards issued to your business or corporation, separate from your personal identity. The credit card is intended for use by a company to establish a business credit profile and create working capital.

Business credit cards are designed to fund services for small to mid-sized businesses. Just like personal credit, business credit issuers rely on your business credit report to determine credit approval and how much you’ll receive.

It’s important to build business credit with discipline and the ability to budget funds appropriately. By keeping the credit utilization low and making all payments on time, your business is more likely to increase revenue growth.

What are the benefits and rewards of business credit cards

Small business credit cards are valuable financial tools when utilized for your business. While loans allow for a lump sum all at once, the process isn’t always as fast as your business may need. The right credit card will provide advantages such as:

  • Creating the ability to manage cash flow by giving 20 to 30 days to pay off expenses without interest
  • Earning rewards like points or cash back on business expenses
  • The ability to monitor and control employee spending with employee cards that all earn rewards and tied to the same account
  • An opportunity to pay off start-up costs over time with a 0% introductory APR offer.

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Crowdfunding is another way to fund your small business. The practice consists of raising small amounts of money from a large number of people. Sites like Kickstarter, GoFundMe, and Indiegogo are straightforward online platforms for individuals looking to obtain funds in this way.

Kickstarter is arguably the most active platform in crowdfunding. However, this is an all-or-nothing site, and if you don’t reach your goal, no money gets collected. This option makes it more of a risk. It’s also important to mention that Kickstarter only backs creative projects, such as films, games, music and technology. If your small business is within the creative field, this would be a favorable site to raise money.

GoFundMe is a generalized fundraising resource. Essentially, the platform is a secure way to collect and distribute electronic payments or donations. Users can create campaigns, set a goal and then describe why they need money. If you have an idea for a small business and need funding this site would provide a space for you to post your business plan and why you need help funding the company.

Indiegogo is similar to the previous platforms mentioned. The site allows people to solicit funds for a startup business, charity, or any creative idea. The benefit of the Indiegogo platform is that it does not decide which projects merit funding. Furthermore, Indiegogo allows you to keep the funds that were raised during your campaign even if you don’t reach the initial goal.

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Venture Capital Funding

Financing investors provide funding to startup companies believed to have long-term growth potential, which is considered venture capital. Venture money usually comes from well-off investors, investment banks, and other investment banks.

With this type of funding, investors and the proprietors of the company divide ownership of a business. Different platforms provide a database of different investors looking to invest in new companies or promising business ideas, making it easier to find investors interested in your niche of the market.

Understand Your Business Finances

There are many financing options available to small business owners today. The greatest responsibility for any small business is to have an overall healthy financial foundation for the company to grow.

Through the use and complete understanding of small business loans and credit cards, your business can thrive. Always do your research and strive to do your business finances responsibly. The result will be an established business with working capital and excellent business credit scores.