Small Business Funding: 11 Financing Options for 2021

Updated on June 7, 2021

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Small business funding can help you launch your startup, hire more staff, or open a new location. The type of funding that’s right for your small business will largely depend on what you need the capital for, but other factors, like how much capital you need, your willingness to take on debt, etc, will also come into play.

Between banks, online lenders, investors, and more creative avenues (like small business grants), there are a variety of sources to turn to find the funding your business needs.

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Top Small Business Funding Options

Here are some of the best small business funding options. Click the links to jump to each option or keep scrolling to learn more.

  1. Traditional term loansBest for established businesses with strong credit.
  2. SBA loansBest for established, profitable businesses.
  3. Business line of creditBest for funding working capital.
  4. Business credit cardsBest for startup business owners with no business history.
  5. Equipment financingBest for purchasing business equipment.
  6. Invoice financingBest for businesses with money tied up in unpaid invoices.
  7. Short-term loansBest for quick funding; businesses that can’t qualify for other options.
  8. Equity investors: Best for businesses with high growth potential.
  9. Small business grantsBest for free funding; community-focused or mission-oriented businesses.
  10. Friends and family: Best for new businesses that need help getting started.
  11. CrowdfundingBest for B2C startup businesses.

1. Traditional Term Loan

A traditional term loan is perhaps the easiest type of small business funding to understand. You borrow a fixed amount of money, usually for a specifically stated business purpose, and pay back the loan over a fixed term with interest.

Since these are typically low-interest business loans (especially if they come from a bank), owners will need to have strong credit to qualify, and their businesses should be financially strong.

Best for

Generally, business term loans are going to be one of the best small business funding options for owners of mature businesses who want to borrow money for a long period of time (more than two years) and want a predictable monthly payment.

Term loans are great for financing business expansions, working capital needs, or refinancing other debt.

Where to Get It

If you think a term loan is the right small business funding option for you, you’ll want to start by applying for a bank loan. (which should get you the best interest rates).

On the other hand, if you can’t qualify for a bank loan or need access to funds faster, you might consider online lenders like Credibility Capital or Funding Circle.

2. SBA Loan

The Small Business Administration (SBA) helps entrepreneurs get funding for business needs in the form of long-term, low-cost business loans that are often the most desirable types of funding for small businesses.

Although the SBA itself doesn’t directly loan money to businesses, the agency incentivizes lenders (like banks) to approve small businesses for borrowing by guaranteeing all or part of their loans. For lenders, that means lower risk and higher reward.

However, because SBA loans are so desirable for small businesses, you’ll have to meet a number of specific requirements and go through a lengthy application process in order to qualify.

Best for

SBA loans are one of the best types of small business funding. With the qualification requirements, borrowers with strong credit who are looking for long-term, low-interest loans will be the best fit for SBA loans.

Where to Get It

SBA loans are issued by SBA-approved lenders, typically banks and credit unions. Although there is some variation based on the individual SBA loan program, in general, many of the biggest banks in the U.S. offer SBA loans.

That said, it’s important to remember that these lenders will determine your eligibility for an SBA loan. Overall, you should have good credit, and your company should be profitable or have a compelling business plan with positive projections. If an SBA lender approves you, they’ll also determine your loan’s interest rate and repayment term—within certain boundaries set by the SBA.

Use our guide to find some of the best SBA lenders.

3. Business Line of Credit

Unlike the first two small business funding options we’ve discussed, a business line of credit essentially works like a credit card: You have a certain amount of capital that you can draw on whenever you need—and you’ll only pay interest on what you use.

Plus, once you pay back the funds you withdrew, you’ll have access to all that cash again. This is why lines of credit are also called rotating or revolving credit lines.

Therefore, with a business line of credit, you can get more working capital, buy inventory, handle seasonal cash flows, pay off other debts, or address almost any other business need. It’s also great to have a business line of credit on hand to pay for unexpected business emergencies.

Business lines of credit are slightly more difficult to qualify for than a loan because they are constant sources of small business funding, but if you’re able to qualify for one, the peace of mind will certainly be worth it.

Best for

A business line of credit is going to be one of the best small business funding options for businesses that have unpredictable or seasonal capital needs and those that want the flexibility to draw funding on an “as needed” basis.

Where to Get It

If you think a business line of credit might be the right solution for you, there are a variety of lenders you can work with to access this type of funding.

Many traditional banks offer business lines of credit, but you can also explore your options from alternative online lenders like OnDeck and Fundbox as well.

4. Business Credit Card

Business credit cards work just like personal credit cards, but they’re designed to be used solely for business purposes and covering business expenses.

Typically, business credit cards have higher spending limits than personal credit cards, as well as lower interest rates and better introductory offers.

Although you do need good credit to qualify for the best business credit cards, there are options for business owners who are rebuilding credit as well. Even startups can qualify for business credit cards. If you need a large amount of capital (over $50,000), a term loan or SBA loan will be a stronger option than a business credit card.

Best for

Ultimately, business credit cards can be a useful financial tool for any business owner.

However, compared to many of the other options on our list, a credit card will be a top funding option for business owners who don’t need too much business capital funding and don’t need access to cash but want the ease of having regular access to business financing in the form of credit.

Where to Get It

If you’re looking for a business credit card to use for small business funding, you can start with major issuers like American Express, Chase, and Capital One to see what they have to offer.

5. Equipment Financing

Equipment financing, as the name implies, is a type of debt financing that’s specific to purchasing equipment for your business. With this type of small business funding, the equipment itself serves as collateral on the loan—meaning the lender is more likely to approve it even if you don’t have stellar credit or financials.

That said, equipment financing can be structured in one of two ways: a lease or a loan. With equipment leasing, you are not the owner of the equipment but are instead paying to rent it. You pay monthly payments and sometimes have the option to purchase the equipment at the end of the lease.

Equipment loans are more like traditional term loans, with a fixed repayment schedule and interest based on the funds you need to purchase the equipment.

Best for

Equipment financing is going to be one of the best small business funding options for businesses that need capital to purchase or lease a vehicle, computer, tractor, or other specialized machinery or equipment for their operations.

Where to Get It

Some banks offer specialized equipment financing programs—however, like most bank loans, you’ll need top qualifications to access this funding. For faster funds with more flexible requirements, you can turn to online lenders like Balboa Capital or Crest Capital to finance your business’s infrastructural needs.

6. Invoice Financing

Invoice financing, also known as accounts receivables financing, is a form of business funding through which lending companies advance your accounts receivable through a quick cash advance of about 85% of the value of your invoices. Later, when your client pays the invoice, you’ll receive most of the additional 15% (minus fees). Invoice financing companies charge a small weekly percentage on the amount of your invoice.

If your business relies on customers paying their invoices, then you’ve probably encountered this problem before: A late payment from a customer could seriously impact your cash flow. With invoice financing, you’re basically paying a small fee to get your invoices paid immediately instead of at some undetermined time down the road. Depending on how your business’s cash flow works, it might be well worth the cost.

Plus, another benefit of invoice financing is that the provider won’t check your credit. Instead, they care more about your customers’ repayment behaviors.

Best for

Invoice financing is going to be one of the best small business funding options for B2B companies that have money tied up in unpaid invoices.

Where to Get It

If you think invoice financing can help fund your business, you’ll want to look specifically for lenders that offer this type of financing, like AltLine or BlueVine.

7. Short-Term Loan

A short-term loan is essentially a condensed version of a traditional term loan. You’ll receive a lump sum of business funding that you’ll pay down, plus interest, according to an agreed-upon remittance schedule. With short-term business loans, though, you’ll have to pay down your debt much quicker than you would with traditional term loans—typically within a year.

As a result, short-term loans will be much smaller, more expensive, and will come with more frequent payments (daily or weekly) than their longer-term counterparts. That said, short-term loans will definitely be one of the most accessible types of financing for a variety of business owners.

Short-term lenders often provide same-day business funding, and the qualifications you’ll need to secure a short-term loan are much less stringent compared to other types of financing.

Best for

Short-term loans are going to be best for those who need quick funding and can’t wait (or aren’t able to qualify) for other types of lower-cost financing.

Where to Get It

For an easily accessible, quick-to-fund short-term loan, you’ll likely want to look at online lenders like Credibly, Fora Financial, and OnDeck.

8. Equity Financing

Equity financing is a way to raise funds by selling ownership in your company. In exchange for money from investors, you give them a portion of ownership and control in your business.

Using equity financing has benefits, particularly the experience and mentorship that the investor brings. This being said, however, there’s one big drawback that often excludes this type of financing as an option for small business owners—funding through equity isn’t a one-and-done transaction.

With this type of business funding, you’re committing to a long-term relationship with an investor who has a serious interest in the success or failure of your business. Ceding some ownership and influence over the company goes hand in hand with equity financing, so if that’s not something you’re ready for, you’ll want to opt for debt financing.

Best for

Equity funding is best for high-growth businesses that have the potential to expand tremendously in the next two to three years. This type of funding is often a good option for businesses in the tech industry.

Where to Get It

Equity financing typically comes from angel investors or venture capital firms. If you’re looking for equity investors on a smaller scale, however, you might turn to friends and family, or crowdfunding, both of which can use fund your business using the equity model.

9. Small Business Grants

If you’re willing to put in the time to apply for them, many funding programs offer up small business grants that provide business financing that recipients don’t have to pay back.

Of course, these grants are competitive—you’ll need to put in the time and effort to find the right grants and submit applications to access one. This being said, there are hundreds of business grants out there—federal, state, local, private grants, and more—so if you think this funding avenue could benefit your business, it’s certainly worth exploring.

Best for

Small business grants are one of the best options for free funding that you don’t have to repay. Grants are also a great option for community-focused businesses, minority- or women-owned businesses, as well as businesses in technology or science industries—as there are a variety of grants designed specifically for these types of businesses.

Where to Get Them

You can find small business grants from the federal government, using a site like Grants.gov, as well as your state or local governments. Nonprofit organizations and private companies also offer grants as well.

10. Friends and Family

If you’re fortunate enough to have friends or family members who can invest in your business or lend you money, it’s a great opportunity. Because of your personal relationship, your friends or family members are likely to offer more comfortable terms on an investment agreement than you’d receive from an angel investor, bank, or online alternative lender.

Plus, depending on how your friend or family member wants to make the arrangement, you can consider proposing either debt or equity financing from them.

Best for

Turning to friends or family for small business funding can be a good option for new businesses, especially if they can’t yet qualify for affordable debt financing.

Where to Get It

This is pretty self-explanatory—however, when turning to friends or family for funding for your business, it’s important to hedge your bets and protect everyone’s interests.

If you and your friend or family member agree to a loan, you’ll want to write out terms for exactly how the loan will be repaid, in what increments, and over what period of time. If your friend or family member is making an investment in your business, you’ll want to clarify the exact percentage of ownership or profit share that person will take, as well as the role your investor will have in business decisions moving forward.

All in all, even if you don’t involve an attorney in the process, you should put the terms in writing and have each party sign so there are no questions later about exactly what was agreed upon.

11. Crowdfunding

If you’re not familiar with these kinds of funding opportunities, here’s the basic idea: You get funding for your business needs from small contributions made by a group of people. Each individual contribution adds up to a bigger total, which amounts to the business funding you require.

Through a crowdfunding platform, you share your vision for what you’ll do with the funds, set a funding goal, and then use social media and other marketing avenues to encourage potential donors to support your campaign. Because most crowdfunding platforms work on an “all or nothing” basis—that is, you must reach your funding goal to receive any cash at all—it often works best for those with more modest business funding requirements.

Best for

Crowdfunding can be time-intensive and challenging—therefore, it’s not only best for businesses who need smaller amounts of funding, but also those that have a tangible result that other people will be excited to support.

This type of funding is often successful for B2C businesses, especially those that can offer incentives for donations.

Where to Get It

The donations come from the general public, but crowdfunding platforms like Indiegogo and Kickstarter help you advertise your campaign and work toward your funding goals.

The Bottom Line

At the end of the day, deciding what small business funding option is right for you comes down to a number of factors that are specific to you, your business, and your financial needs.

The good news is, there are currently more choices than ever for businesses that require funding. Whether you look into debt financing, equity financing, or a more creative funding solution, you’ll have a variety of options to explore, compare, and consider.

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Randa Kriss
Senior Staff Writer at Fundera

Randa Kriss

Randa Kriss is a senior staff writer at Fundera.

At Fundera, Randa specializes in reviewing small business products, software, and services. Randa has written hundreds of reviews across a wide swath of business topics including ecommerce, merchant services, accounting, credit cards, bank accounts, loan products, and payroll and human resources solutions. 

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