12 Small and Midsize Business Financing Options

Table of contents

Need capital for your small or midsize business?

Whether you want to launch a new product line, expand to a new location, or just manage your cash flow, these 12 financing options can help propel your business forward.

Key takeaways

Financing options for small and midsize businesses include loans, grants, and equity funding, each serving different needs.

Eligibility depends on your business's credit score, operational history, and how the funds will be used.

Businesses often use a mix of financing options to cover both short-term and long-term needs.

How does financing a business work?

Financing a business typically involves acquiring capital through debt or equity.

Debt financing means borrowing money that you pay back over time, usually with interest.

Equity financing involves trading ownership stakes for capital, which means investors gain a share in your business.

Grants are a third option—you don't usually need to pay them back or give anyone a stake in your company, but the requirements to apply tend to be narrow. Still, if you qualify, grants can be a great way to fund your business.

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Financing options for businesses

These small business financing options include a wide range of financial products, from small business loans (like SBA loans) and small business grants to venture capital funds and lines of credit with traditional lenders for midsize businesses and beyond.

1. SBA loans

Small Business Administration (SBA) loans are guaranteed by the government—if you don't pay back an SBA loan, the government will cover it. That makes lenders more willing to provide loans to companies that might not qualify otherwise, often at better rates.

Compared to traditional bank loans, SBA loans offer lower down payments, longer repayment terms, and competitive interest rates, making them a popular financing option for starting a new business or expanding operations.

2. Online loans

Online business loans offer a quick way to access funding without the hassle of physical paperwork. Businesses can apply quickly and easily, and they can receive funds within 24 hours if they're accepted.

The requirements and terms depend on where you apply.

Many reputable banks offer online loans at reasonable rates as long as your business has a good credit history—just make sure you fully understand the terms they're offering. Higher annual percentage rates (APRs) can end up costing a lot of money in interest.

3. Credit union financing

Credit unions often offer lower interest rates and more flexible terms compared to traditional banks. They are member-owned, not-for-profit financial institutions, so they prioritize the needs of their members over making a profit. This can result in more personalized service and a better overall experience for member businesses that need financing.

Many credit unions also have a local focus, making them a good choice for businesses that want to support their community while securing the funding they need to grow.

4. Business credit cards

Business cards can be a convenient way to access quick capital, whether they're credit cards or charge cards. They often come with rewards programs and even expense-tracking features that can help your business manage budgets, cash flow, and more.

Using a business card responsibly can also help build your company's credit profile, making it easier to qualify for larger loans and better terms in the future.

5. Lines of credit

A line of credit gives your business access to funding in case you need it, up to a certain amount. You don't pay interest on it unless you use it—and then you only pay interest on the part you've used.

Let's say your business has a $15,000 line of credit with a local bank. As long as you aren't using it, you don't have to pay any interest. If you decide to use $10,000, you can draw that money into your bank account. Once it's in your account, you can use it however you like, paying interest on it until you pay it back.

The total amount, interest rate, and other terms will vary based on the lender, the number of years you've been in business, and your company's credit history.

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6. Equipment financing

If your business needs new equipment and you don't have the cash to buy it, equipment financing may be an option. Like borrowing money to buy a car, equipment financing lets you borrow cash for the equipment you need and pay it back over time.

Interest rates for equipment financing are often better than rates for other kinds of financing because these loans are secured loans—if you stop making the payments, the lender can reclaim the equipment you bought.

7. Invoice financing

Invoice financing is a popular way to use short-term financing to improve your cash flow. If you're waiting 30, 60, or even 90 days for a customer to pay an invoice, you may be able to get that cash immediately in exchange for a small discount—around the same percent you'd pay for a credit card payment.

Essentially, the lender is loaning you that cash, and the lender gets paid back when the customer pays the invoice.

8. Crowdfunding

Platforms like Kickstarter and Indiegogo let businesses raise funds through public donations in exchange for rewards or equity—like offering limited editions of a new product your business is still developing. This method can also serve as a marketing tool, generating buzz for your business idea before launch.

Crowdfunding also provides the added benefit of validating a business idea or product before it even hits the market, as the response from the crowd can indicate demand and interest. Overall, crowdfunding offers a broadly accessible way for businesses to secure the financing they need to grow and succeed.

9. Angel investors

Angel investors are high-net-worth individuals who provide financial backing for small businesses or startups, usually in exchange for a certain amount of ownership equity in the company.

Offering more than just capital, angel investors may also provide valuable business advice, industry connections, and mentorship to help the business grow and succeed. This type of financing can be especially helpful for businesses that need early-stage funding to get their ideas off the ground.

10. Venture capital

Venture capital firms also invest in startups and small businesses in exchange for equity ownership. This type of financing can provide the capital companies need to take their operations to the next level.

However, venture capital funding often comes with high expectations for growth and potential loss of control for the business owner. It's important to consider any venture capital offer carefully to make sure it's the right financing option for your specific needs and goals.

11. Grants

Unlike loans, grants don't need to be repaid—and they don't generally require you to give up any equity in the company—making them extremely attractive to small businesses. Grants are typically offered by government agencies, non-profit organizations, and private foundations to support specific industries, projects, or initiatives.

While the application process for grants can be competitive and time-consuming, this kind of funding can offer tremendous opportunities for qualified businesses.

12. Self-funding

Self-funding involves using your personal savings, investments, or assets to fund your business's operations and growth. If you can afford to fund your business yourself, you can avoid taking on debt or giving up equity in your company.

The downside is that you'll be taking on all the financial risk yourself, and some companies require more initial capital than most people can afford. However, if your business doesn't require much upfront cash, self-funding can be a great way to get started, letting you build your company's credit rating over time.

Where to find financing for businesses

Banks: Traditional banks often provide a range of financing options, including term loans and lines of credit. If you already have a business bank account, start by asking what kinds of financing they offer.
Credit unions: Community-based credit unions typically offer favorable terms and personalized service. Search for credit unions near you or ask your local Chamber of Commerce.
Online lenders: Various online platforms cater to businesses that need quick access to capital. Just make sure you understand the terms they're offering—if it sounds too good to be true, chances are there's a catch.
Grant programs: Websites like Grants.gov can help you find grants that fit your business. Be sure to search for grants locally too—state and local governments as well as nonprofit organizations may have special initiatives in your area.
Crowdfunding platforms: Online platforms like Kickstarter and GoFundMe can help you raise funds from the public, especially if you have a large email list, an active social media following, or some other way to get the word out about your project.

What type of financing for businesses should you use?

Choosing the right financing option depends on your business goals, your company's financial health, and the type of financing you qualify for, but you shouldn't feel limited to a single option. Many businesses use a mix of financing options to manage their capital and cash flow needs.

What is the best source of finance for a small business?

If you're just getting started and your business doesn't need a lot of capital up front, you might use self-financing for the first few years, then apply for loans or credit cards once you've been in business for a while.

If your new business idea needs more capital to get started and you're not in a hurry, you might want to research and apply for grants, look for an angel investor, or try a crowdsourcing platform.

Or, if you've already been in business for a while and you just need help managing your cash flow for a month or two, you might want to look into invoice financing or a corporate card through a financial automation platform like BILL.

Access the funding you need, no matter the size of your business.