6 best sources of funding for small businesses
Your company may already be heading in the direction of growth, but in order to continue full speed ahead, you’ll require the funds to meet your business needs. Whether you like it or not, your cash flow can make, break, or stunt your growth. Luckily, funding for small businesses can keep your finances healthy, helping you achieve one successful result after another.
Not every small business owner can bootstrap their way to success. Running a business can take a lot more working capital than you expect — often more than your initial self-financing can sustainably provide. As such, many entrepreneurs turn to small business funding opportunities to stay on an upward trajectory.
This guide will take you through several funding options that can help your business thrive.
Funding for small businesses: 6 sources to consider
There are many ways to access small business financing. The government, corporations, nonprofits, and other organizations across the United States have programs to help you get the money you need — sometimes at no cost.
Here are six sources of funding to consider when seeking outside capital:
1. Small business loans
The federal government supports a number of funding opportunities exclusively for small businesses. Two of the best options come from the U.S. Small Business Administration (SBA) and Community Development Loan Funds (CDLFs).
Business owners can access SBA loans through lending partners, including select banks and credit unions. You can use these loans for a variety of purposes, like equipment financing or increasing working capital. Depending on the exact loan program you choose — the SBA primarily provides funding through the 7(a) loan program — you may be able to access anywhere between $500 and $5 million in funding.
CDLFs are low-risk small business loans that are specifically bookmarked for low-income communities. These are available through qualified mission-driven lenders (usually nonprofits and Main Street banks) in areas where economic development is needed. These lenders are often funded by the U.S. Treasury, grants, and more.
For both SBA and CDLF loan options, different lenders may have different repayment terms and conditions that you'll need to consider.
2. Small business grants
If you want to get completely free money (i.e., cash that doesn't require repayment), you may want to look into small business grants. Grants are admittedly harder to receive than bank loans due to their high demand, but there are still opportunities to apply throughout the year.
The Catalog of Federal Domestic Assistance (CFDA) allows you to sort through grant programs offered by the federal government and learn about your company's eligibility. The Small Business Innovation Research (SBIR) program or a Small Business Development Center (SBDC) near you may also help you connect you to regional or local government grants.
Local, regional, and federal grants from government entities aren't the only ways to get free funding for small businesses. You can also search for nonprofit organizations in your area that offer grants. Some corporations, like FedEx and USDA, also offer small business grant opportunities.
3. Crowdfunding platforms
When you have a great business idea that's gaining traction already, crowdfunding can be a great way to get cash without going through time-consuming application processes. Crowdfunding allows you to source money from the public, usually using sites like GoFundMe or Kickstarter, to cover the costs of launching a new business, product, service, or something similar.
With this type of funding, individual contributors usually pitch in a small amount of money for a reward — for example, the finished product, lifetime access to new software, or even a bit of equity in the company. The more a user donates, the more desirable of a reward they get. However, people can also donate to your company with no returns, or you can choose not to offer anything as a reward.
Crowdfunding is a great way to maintain control over the terms of your funding and ask for exactly what you need to proceed with your business plan. However, you will need to do a considerable amount of marketing — perhaps through social media, email, and more — to make your crowdfunding campaign successful.
4. Credit cards
If all you need is a boost in your monthly working capital, rather than a massive loan, business credit cards can help you cover some of your daily operational costs, monthly bills, and one-time purchases. They provide short-term funding for small businesses (up to a given monthly credit limit) that must be partially paid off within a month — although your business credit score can greatly benefit from paying in full.
The Brex Corporate Card is an excellent funding opportunity that saves you from the time-consuming process of accessing traditional bank credit cards. With Brex, you can get instant approval if you meet eligibility requirements and receive a virtual card to use as soon as you're approved.
5. Angel investors
When you have a relatively new business, it can be challenging to get venture capitalists to invest. Venture capital is earmarked for startups that have considerable traction, or can otherwise prove their ability to grow and profit rapidly.
For most small businesses, angel investment can be a more appealing alternative. Angel investors are individuals (though some work as groups) who invest their own money into early-stage companies with potential. In exchange, angel investors may seek equity in the businesses they choose to invest in.
Some angel investors will want to spend more time in a company than others. You'll want to consider their expectations and weigh that against the amount of mentorship and technical assistance you're seeking, as well as the amount of control you're willing to give up.
6. Lines of credit
Lines of credit are popular small business funding options that let you borrow up to a certain credit limit. When you choose a business line of credit over a credit card, you can typically access lower annual percentage rates (APRs).
Lines of credit also provide higher credit limits than credit cards. However, lines of credit do not last forever — only for a few years or so — making them best for borrowers who have short-term needs for bigger investments.
As a perk, interest only accrues on the amount you borrow when you choose this type of financing. For example, if you’re approved for a $1 million line of credit, but only borrow $500,000, you’ll only be charged interest on that $500,000. Unlike a loan, you can instantly access any funds you pay back.
Tap into funding for small businesses
Funding for small businesses is more accessible than you may think. Whether you're borrowing from financial institutions, getting grants, or taking advantage of business lines of credit, there's a variety of financing options for new and existing businesses to get the cash necessary to launch, operate, and grow.
In many cases, you can even find niche funding opportunities that narrow the applicant pool and give you a better chance of getting free cash. Learn about minority small business grants you may be eligible for, as well as the pros and cons of taking them on.
Terms subject to change. Brex Inc. provides a corporate card. The Brex Mastercard® Corporate Credit Card is issued by Emigrant Bank, Member FDIC.
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