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8 Best Financing Options For Running a Small Business

By: SmallBizClub



As a business owner, you understand the importance of capital for the growth and sustainability of your business. However, obtaining a small business loan has become increasingly challenging nowadays, but not impossible. With various financing options from lending institutions, you can maximize your potential for managing your small business.

Here, we explore the best financing options for running a small business.

8 Reasons Why Small Business Need Financing

Before diving into the best financing options for running a small business, let’s first explore why your business needs loans.

  • Small businesses need finances for working capital and to run their operations during peak times.
  • To bridge the gap between the amount you need to pay your suppliers and what you’ll receive from customers.
  • To finance the purchase of new equipment or assets.
  • For urgent repairs.
  • To expand office space.
  • For staff costs especially when recruiting new employees.
  • To pay for urgent one-time expenses or unexpected slowdown.
  • To purchase a motor vehicle for business use.

5 Things to Keep in Mind When Searching for Best Loans for Your Small Business

In deciding the best financing options for your small business, it’s essential to ask yourself the following questions:

  • How much money does your business need?

It would be advisable to draw up a small business plan to outline your financing needs to avoid overborrowing and having excess money. Equally, under-borrowing can leave you with unfinished projects and a cash deficit.

  • Are there any associated fees?

It’s crucial to determine if there are associated charges with the loan applications. Typically, lenders may charge processing fees, and your application can attract third-party charges such as insurance, valuation, and attorney fees. Worth noting that any extra fee can impact your business cash flow.

  • How much will you pay every month?

Lenders will approve loans and determine your monthly repayment depending on your ability to pay. Your repayment should not exceed 30% of the total expense, which can eat into your cash flows.

  • What’s the repayment period?

The repayment period depends on the type of business loan. Usually, unsecured loans for bad credit facilities may not run for more than twelve months. On the other hand, your lender can offer you a repayment period of more than twelve months if your loan is fully secured.

  • What is the rate of interest? 

Two types of interest rates come into play when borrowing from banks or other financing institutions. You need to know if your lender offers a fixed or variable interest rate.

Fixed interest is ideal for short-term loan facilities, whereas a variable interest rate would be a good option for long-term loans. Conversely, a variable rate is not ideal if the economy is unstable and prices are rising.

8 Financing Options For Running a Small Business

Now that you know why your small business needs a credit facility and the most important questions to ask your lender, here are the best financing options you can consider.

Bank Loans

A study shows that small businesses borrowed more than $644 billion in 2019 to fund their operations. From the figure, it’s evident that banks are vital lenders to small businesses.

Applying for a bank can be incredibly straightforward if you have everything in order. Failure to meet some requirements can lead to a delay in approval or a decline. Generally, banks will look at the following vital aspects when advancing loans to small businesses.

Credit Score

When you send an application for a loan, the first thing your lender will do is generate a credit report to assess your credit history, score and credit worthiness.

In the US, your bank may use three main credit reporting agencies to run a credit report. The main agencies include Experian, Transunion, and Equifax, and these mostly use a FIFO score to classify good or bad credit.

To make it easier, here is a table to illustrate the different categories based on your score.

Category Credit Score
Very Poor 300-579
Fair 580-669
Good 670-739
Very Good 740-799
Excellent 800-850

From the classification, your lender will be reluctant to lend if your score is fair or very poor. Nonetheless, some lenders may advance bad credit business loans if you meet specific criteria, such as providing a guarantor with good credit and collateral.

Ability To Pay

A bank will advance credit for your small business if you demonstrate your ability to pay. During your application, you’ll need to provide cash flow statements, business records, bank statements, purchase and sales orders, and receipts as evidence that your business is breaking even.

The lender will also want a statement of your assets, accounts receivables, liabilities, and account payables or what is popularly known as a balance sheet to assess whether your business is solvent.

For long-term business loans, bank officials may visit your location and review the business operations.


As you already know, you can get a small business loan or working capital loan of less than one year without providing security. However, the bank will require security to back up your application if you want to purchase equipment, property, or a vehicle.

Typically, the collateral can be a motor vehicle or property title, which must be jointly registered with the bank. Subsequently, the charge clause attached to the property will only be discharged once you complete paying the loan.

Credit Cards

There’s a general misconception that only individuals can qualify for credit cards. Unknown to many, even businesses can get credit cards from lenders or providers depending on multiple factors.

The best part is that most issuers of credit cards have less stringent rules in granting the same. Therefore, credit cards are the first choice for many business owners seeking quick and short-term financing options.

Credit cards are convenient for buying things, but they are considered a line of credit for businesses. A small business survey notes that over 50% of businesses polled used credit cards to fund their day-to-day operations. A business credit card can be an excellent alternative to fund your business.

There’s little difference between credit card applications and appraisals from lenders. To qualify, your issuer will evaluate your personal credit history, income sources, and credit scores. While they may ask you for collateral, some lenders may request a personal guarantee.

Despite credit cards being vital financing options, most people tend to misuse them, impacting your small business cash flows. To navigate this, have one credit card at a time. Further, always follow the credit utilization rule by not borrowing more than 30% of your debt limit.

Invoice Financing

Even though some banks offer invoice financing options to businesses, you can get the same from your suppliers. It’s especially easy if you receive payments from your customers through invoices.

Suppliers can restock your warehouse based on invoices which can speed up your business operations. Even though it can be expensive, it can help your small business navigate cash flow issues in the short term and avoid long invoice cycles.

Grants for Small Business

Statistics show that most small businesses wrap up before their first birthday. The truth is, running a small business is no mean feat. Costs can dramatically pile up in the first year, making it difficult to break even.

Luckily, private and governmental organizations offer grants to small business startups. These include business support programs, private foundations, state-based support initiatives, and federal government programs. You can search for grants on the grants.gov website and find out if your business can qualify.

However, you must have a written proposal and business plan to convince the funders that your business idea is viable.

Loans from Family and Friends

Yes, besides conventional borrowing money from banks or lending institutions, you can also get funds from your loved ones. The advantage of this approach is that it’s merely based on trust issues. There may be no strings attached or fees, and the terms are friendly. However, failure to repay can result in severing family or friendship ties.

How To Speed Up Your Small Business Loan Application Process

Delays in obtaining credit can slow down your business operations and lead to cash flow problems. Luckily, you can avoid this and get a loan by following these tips;

  • Run your personal and business credit report to identify pending items that may affect your score. Close accounts that may attract fees and pay your pending bills on time. There’s no need to go through the process and waste time only to discover unpaid items in your report at the end of your application.
  • Have all documents ready, including tax returns, IRS documents, and insurance certificates.
  • Ensure your business license and registration documents are up-to-date.
  • Have your state/county/city registration documents, including a memorandum of association, articles of association, and partnership deeds for registered companies.
  • Have your legal contracts ready, including leasing and franchise agreements.
  • Provide a six-month bank statement to support your cash flow statement.
  • Have an up-to-date business plan or proposal outlining your business idea, marketing strategies, customers, and viability.


Running a small business can be an eyesore if you have a cash deficit. Whereas deciding on the best financing option can be challenging, it’s not entirely impossible. It all boils down to maintaining a good credit history and demonstrating your ability to pay.  Lastly, if you need money now for running your small business, ensure you have all the documentation ready.

Published: August 31, 2022

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