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Finance HQ

Categories of Business Finance

Debt financing is money that must be repaid, usually with interest. 

Examples include: Loans, Lines of credit, and Business credit cards.

Equity financing is funding given in exchange for partial ownership and future profits.

Examples include: Venture Capital, Private Equity, and Angel Investors.

Non-traditional financing options include crowdfunding, bootstrapping, and fundraising.

Read more on these financing options below

Grants offer a way for business owners to get money that can help them grow their business, without having to worry about paying back funds.

Small business grants can be a great funding option for startups, as well as for businesses that can’t qualify for traditional debt financing.


Funding at a Glance

Funding TypeBest For:Typical Qualifications
Traditional Business LoansEstablished businesses1+ year in business
Good credit
May need to provide collateral or sign a personal guarantee
SBA LoansEstablished businesses who don’t meet the lending criteria of traditional banks2+ years in business
Decent credit
Business line of creditEstablished businesses looking to cover gaps in cash flow6+ months in business
Decent credit
Business Credit CardsBusinesses seeking to cover small gaps in cash flowDecent credit
Equity InvestmentsStartups or established businesses planning to expandA relationship with VC Funds or other investors
BootstrappingBusiness owners who are personally financially secureNone
CrowdfundingBusinesses with a large public profileSignificant popularity or public support
Friends & FamilyBusiness owners who have a circle of peers and family members who have enough resources to make an investmentBe prepared to show investors your business plan

Types of Debt Financing

Small Business Loans & Traditional Bank Loans

A small business loan gives you access to capital so you can invest it into your business. The funds can be used for many different purposes including working capital or improvements including renovations, technology and staffing, business acquisitions, real estate purchases and more. When a bank is assessing if you are eligible for a loan and how much debt your business can afford, they look at many different factors such as the condition of your business, the available collateral, your cash flow and your character. Depending on what type of loan product you are applying for, the requirements and terms can vary so be sure your lender explains what they will need from you in order to qualify.

SBA Loans

SBA loans are business loans partially guaranteed by the U.S. Small Business Administration and issued by participating lenders, usually banks. These loans have tight lending standards, but if you can qualify for an SBA loan, their flexible terms and low interest rates can make them one of the best small business loans.

SBA 7(a) Loans are the most common type of SBA loan. This program was developed to assist small businesses who can’t get funding through a conventional business loan. The SBA 7(a) loan is ideal for working capital or other business financing needs since it offers long repayment terms and capped interest rates.

  • Used for: Working capital, expansion and equipment purchases.

SBA 504 Loans are a specialized type of SBA loan designed to facilitate long-term financing for small businesses looking to acquire major fixed assets, such as real estate or large equipment. This program aims to support small businesses that may have difficulty obtaining traditional financing by providing favorable loan terms and access to capital. These loans are ideal for businesses seeking to fund substantial investments in real estate or equipment, as they offer low down payments, fixed interest rates, and long repayment terms, making them a valuable tool for expansion and asset acquisition.

  • Used for: Purchasing long-term, fixed assets like land, machinery and facilities.

SBA Microloans are tailored specifically for entrepreneurs and small business owners who require smaller amounts of funding compared to traditional loans. The Microloan Program aims to fill the gap in financing for startups and small enterprises that may not qualify for larger loans or have limited access to credit from traditional lenders. These loans often come with flexible terms and favorable interest rates, making them an attractive option for small businesses looking to grow and succeed

  • Used for: Covering working capital needs, purchasing inventory or equipment, or funding other essential business expenses up to $50,000. 

Lines of credit

A business line of credit is a flexible business loan that works similarly to a business credit card. Borrowers are approved up to a certain amount and can draw on their line of credit as needed, paying interest only on the amount actively borrowed.

Business Credit Cards

Business credit cards are designed for use by businesses, as opposed to personal credit cards, which are used by individuals. For small business owners in particular, having a business credit card can be a good way to keep their business and personal expenses separate for bookkeeping and tax purposes.

Types of Equity Financing

Small Business Investment Company (SBIC)

An SBIC, or Small Business Investment Company, is a privately owned company that receives financial backing and regulatory guidance from the Small Business Administration (SBA). SBICs are expected to invest in small businesses using their own funds along with the funds borrowed from the SBA, under the guarantee provided by the agency.

You can view a full list of registered SBIC’s on the SBA website by clicking here, or for a full list of currently active SBIC’s, visit our Funding Sources page
you can view our funding sources page for a list of currently active SBIC’s, organized by state.

Venture Capital & Private Equity

Venture Capital refers to a type of financing provided to early-stage, high-potential startup companies that are deemed to have long-term growth potential. Venture capitalists (VCs) invest funds in these startups in exchange for an ownership stake. They typically take higher risks in exchange for potentially higher returns if the startup succeeds. Venture capital is often sought by entrepreneurs who need funding to develop or expand their innovative ideas or businesses.

Private equity firms typically invest in more mature companies with established operations and a track record of profitability. These firms raise capital from institutional investors and high-net-worth individuals, and then use that capital to acquire or invest in companies with the aim of improving their performance and ultimately selling them for a profit. Private equity investments often involve taking a significant ownership stake and actively participating in the management of the company to enhance its value.

Angel Investors

Angel investors are individuals who provide financial backing to early-stage startup companies in exchange for equity ownership or convertible debt. Unlike venture capitalists, who typically invest funds from institutional sources, angel investors are usually affluent individuals who invest their own money. They often bring not only capital but also valuable expertise, industry connections, and mentorship to the startups they invest in. Angel investors play a crucial role in supporting entrepreneurs during the initial stages of their businesses when traditional sources of financing may be difficult to obtain.

 

Non-Traditional Financing

Crowdfunding

Crowdfunding is a way to access funding that is done by raising small amounts of money from a large number of people or organizations.

There are four types of crowdfunding:

  • Donation based: Donors give money for nothing in return. (Check out GoFundMe)
  • Equity based: Investors provide funds in return for shares in the business (Check out WeFunder)
  • Debt based: Investors are repaid with interest (Check out Kiva)
  • Reward based: Those who donate receive products or services in return (Check out KickStarter)

Bootstrapping

Also referred to as self-funding, this is when you leverage your own financial resources, like your personal credit cards, savings accounts, 401(k), or drawing from your home equity.

Opting to utilize personal assets provides the advantage of maintaining absolute control over your business affairs. However, it also entails assuming personal liability for financial risks. Before you commit to fund your business from your own assets, you should speak with a financial adviser, as there could be tax penalties or fees incurred when withdrawing funds from your retirement accounts or other assets.

Friends & Family

Aside from using your personal assets, you may find family or friends willing to back your business venture financially, either through a gift that does not need to be paid back or as a loan that will need to be repaid. But this type of loan will likely have lower interest rates than borrowing from a traditional bank.

Relying on support from family or friends for financing offers swift and straightforward access to funds. Additionally, it sidesteps the need for factors like your credit score or an extensive review of financial documentation. However, it does come with a personal caveat: Failure to repay the loan on time or business setbacks could strain your personal relationships.

Contracting Assistance Programs

Women-Owned Small Business (WOSB) Federal Contract program

The federal government’s goal is to award at least 5% of all federal contracting dollars to women-owned small businesses each year.

8(a) Business Development program

The 8(a) Business Development program helps socially and economically disadvantaged small businesses grow by limiting competition for certain contracts to participating businesses, allowing them to become solid competitors in the federal marketplace.

HUBZone program

The HUBZone program fuels small business growth in historically underutilized business zones with a goal of awarding at least 3% of federal contract dollars to HUBZone-certified companies each year.

The government limits competition for certain contracts to businesses in historically underutilized business zones. The program aims to award at least three percent of federal contract dollars each year to HUBZone-certified companies.

Mentor-Protégé program

The SBA Mentor-Protégé Program enables eligible small businesses (protégés) to get valuable business development help and win government contracts through partnerships with more experienced companies (mentors).