Small Business Funding: Every Option Explained, and How to Pick
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I’m Guru, your lending sidekick. “Small business funding” covers a lot of ground: loans, lines of credit, SBA programs, grants, invoice financing, equipment financing and more. Each one fits a different job. Here’s what each type is, what it really costs, how to pick, and how to get ready so your application goes smoother.
See my optionsQuick note on how I work: I don’t lend money. I help you compare options and match you with funding partners, and those partners make every funding decision.
The main types of small business funding
Start with the job the money has to do. Buying a machine, covering payroll during a slow month, and opening a second location each point to a different tool.
Term loans
A lump sum you repay on a fixed schedule, usually monthly. Good for a one time, planned cost like an expansion or a big purchase. You pay interest on the full amount from day one, so borrow what you need, not more. Run the payment first with my business loan calculator.
Business lines of credit
A limit you draw from as needed, repay, and draw again. Interest is generally charged only on what you’ve drawn. Best for uneven cash flow, seasonal costs, or repeat purchases. My business line of credit guide goes deeper, and the business line of credit calculator shows what a draw costs.
If you’re in an eligible state (Plexe doesn’t serve businesses in CA, HI, NV, ND, SD, TN or Puerto Rico), Plexe, my preferred line of credit partner, offers revolving lines up to $250K. It generally looks for 2+ years in business, a FICO score of 685 or higher, and $15K+ a month in bank inflows. Each offer is individually assessed, and Plexe makes the decision.
SBA loans
Loans made by banks and other lenders and partly guaranteed by the U.S. Small Business Administration. The SBA describes three main programs (SBA loans):
7(a)
the SBA’s primary program for long term financing for a variety of purposes, including working capital, equipment and inventory. See my SBA 7(a) loan guide.
504
long term, fixed rate financing for major assets like real estate and equipment, through Certified Development Companies. See SBA 504 loans.
Microloans
loans of $50,000 or less, made through intermediary lenders. See SBA microloans.
SBA loans often have longer terms, but expect more paperwork and a longer process. Check SBA loan requirements, current SBA loan rates, and estimate payments with the SBA loan calculator.
Grants
Money you don’t pay back. Grants come from government agencies, nonprofits and corporations, and they’re competitive, slow, and usually tied to a specific purpose, industry or owner group. For example, WomensNet awards three $15,000 Amber Grants every month, plus three $75,000 year end grants (Amber Grant rules). Treat grants as a bonus, not a plan for cash you need next month. Start with my small business grants guide, and see grants vs loans and women-owned business grants.
Invoice financing and factoring
If customers pay you on 30, 60 or 90 day terms, your cash is stuck in unpaid invoices. Invoice financing lets you borrow against them; invoice factoring means selling them for cash now, minus a fee. Approval often leans on your customers’ ability to pay as much as yours. More in invoice financing myths.
Equipment financing
A loan or lease to buy a specific machine, vehicle or tool, where the equipment usually secures the deal. Because the asset backs it, it can be easier to get than an unsecured loan. See my equipment financing guide.
Working capital loans
Short term funding for day to day costs: payroll, rent, inventory, a slow season. It can come as a short term loan or a line of credit. See working capital loans. If the need is stock specifically, my inventory loan guide covers it.
Merchant cash advances (read this one carefully)
A merchant cash advance (MCA) isn’t a loan. A provider gives you cash now and takes a share of future card sales or daily or weekly bank debits until a set amount is repaid. It can fund fast and works with weaker credit, but it’s often the most expensive option on this list, and the cost is quoted as a factor rate, which isn’t the same as an APR. Frequent payments can squeeze cash flow, and stacking more than one advance is how many owners get into trouble. Before you sign, run it through my MCA cost calculator and read my merchant cash advance guide.
Startup funding
New businesses with little or no revenue have fewer options: savings, friends and family, SBA microloans, grants, equipment financing, and in some cases investors. My startup funding guide walks through them.
Small business funding options compared
| Option | How it works | Good fit when | Watch out for |
|---|---|---|---|
| Term loan | Lump sum, fixed payments | One planned, sizable cost | Interest on the full amount from day one |
| Line of credit | Draw, repay, draw again | Uneven cash flow, seasonal or repeat costs | Variable costs and draw fees with some providers |
| SBA 7(a), 504, microloan | Lender loans partly guaranteed by the SBA | You can wait longer for longer terms | More paperwork and a slower process |
| Grant | Award you don’t repay | You fit a specific program and have time | Competitive, slow, purpose restricted |
| Invoice financing or factoring | Cash against unpaid invoices | B2B sales with slow paying customers | Fees reduce what you collect |
| Equipment financing | Loan or lease secured by the equipment | Buying a specific asset | Equipment can be repossessed if you default |
| Working capital loan | Short term cash for daily costs | Payroll, rent, inventory, slow months | Short terms mean bigger payments |
| Merchant cash advance | Advance repaid from future sales | Fast need, weaker credit, nothing else fits | Often the most expensive option; frequent payments |
How to pick the right funding
Ask yourself four questions:
- What is the money for? A one time asset points to equipment financing or a term loan. Ongoing, uneven costs point to a line of credit. Slow paying customers point to invoice financing.
- How fast do you need it? Faster money usually costs more. If you can wait, SBA and bank options are worth a look.
- What can you afford to repay? Compare total cost, not just the rate or the payment. Daily or weekly payments hit cash flow harder than monthly ones.
- What do you qualify for today? Time in business, revenue and credit narrow the field. Knowing where you stand saves you from applying for things that won’t fit.
Illustrative example only, not a quote: $50,000 at 10% APR over 24 months works out to about $2,307 a month and about $5,374 in total interest. The same amount as a factor rate product repaid daily can cost far more in less time, which is why I run every offer through a calculator before deciding.
What funding partners typically look at
Requirements vary by partner and product. The common ones:
Time in business
Many products want a track record; startups have fewer choices.
Revenue and bank activity
Consistent deposits matter a lot, especially for lines of credit and working capital.
Personal and business credit
Higher scores open more and cheaper options.
Existing debt
Other loans or advances affect what you can take on.
Collateral
Equipment, invoices, inventory or real estate can back some products.
Industry
Some partners don’t serve certain industries.
Curious how I decide which partners to show you? See how I evaluate lenders.
How to prepare before you apply
- Know your number. The amount, what it’s for, and when it pays off.
- Pull your credit (personal and business) and fix errors first.
- Gather documents: recent bank statements (usually 3 to 6 months), tax returns, a profit and loss statement and balance sheet, your business formation documents, and quotes or invoices for what you’re buying.
- Clean up your bank account. Overdrafts and big unexplained swings raise questions.
- Compare at least two offers on total cost with the business loan calculator.
- Read the agreement: fees, prepayment terms, personal guarantees and payment frequency.
Ready to compare? Get matched and I’ll point you to partners that fit what you need. 1West, for example, offers lines of credit and working capital. Partners make the funding decision, and terms depend on your business.
Guru’s take
Match the funding to the job. Borrow long for things that last, short for things that turn over fast, and use grants when you have time to chase them. The cheapest money is usually the slowest to get, so plan ahead when you can. And if a fast offer feels too easy, run the total cost before you sign.
FAQ
How do I get funding for my small business?
Decide what the money is for and how much you need, check your credit and revenue, gather bank statements and financial documents, then compare offers on total cost. Matching the funding type to the job matters more than the lender’s name.
What is the easiest small business funding to get?
Products backed by your sales or an asset, like merchant cash advances, invoice factoring and equipment financing, are often easier to qualify for. Easier usually means more expensive, so compare total cost first.
Can I get funding for a new business?
Yes, but options are narrower. Savings, SBA microloans (up to $50,000, per the SBA), grants, equipment financing and investors are common starting points. See my startup funding guide.
Are there small business grants I don’t have to pay back?
Yes. Grants aren’t repaid, but they’re competitive and usually tied to a purpose or group. My small business grants guide lists where to look.
Does Lending Gurus lend money?
No. I help you compare options and match you with funding partners. The partners review your application and make every funding decision.
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