Small business funding provides the capital you need to start, grow, or sustain your company. You can access funding through traditional bank loans, SBA programs, grants, lines of credit, or alternative lenders—each with different requirements, speeds, and costs.
Quick Facts: Small Business Funding Options
| Funding Type | Amount Range | Approval Time | Credit Requirement | Best For |
|---|---|---|---|---|
| SBA 7(a) Loans | $50,000-$5 million | 30-90 days | 640+ | General business purposes |
| SBA Microloans | Up to $50,000 | 2-4 weeks | 500+ | Startups, underserved entrepreneurs |
| Business Line of Credit | $10,000-$250,000 | 1-7 days | 600+ | Cash flow management |
| Term Loans | $25,000-$500,000 | 3-10 days | 650+ | Major purchases, expansion |
| Business Grants | $1,000-$20,000+ | Varies | N/A | Specific industries/demographics |
| Invoice Financing | Based on invoices | 24-48 hours | 550+ | B2B companies with receivables |
What is Small Business Funding?
Small business funding is any capital you obtain to operate, expand, or launch your business.
Funding comes in two main forms: debt financing (loans you repay with interest) and equity financing (selling ownership stakes). Most small businesses use debt financing because you maintain full control while accessing needed cash.
The funding you choose depends on your needs:
- Working capital for daily operations
- Equipment purchases or upgrades
- Real estate acquisition
- Inventory restocking
- Hiring employees
- Marketing campaigns
- Debt refinancing
Your business stage matters too. Startups need different funding than established companies with years of revenue history.
SBA Loan Programs: Government-Backed Financing
SBA loans are partially guaranteed by the U.S. Small Business Administration, making them accessible to businesses that can’t qualify for conventional bank loans.
SBA 7(a) Loans
The 7(a) program is the SBA’s most popular loan option, offering up to $5 million for almost any business purpose.
You can use 7(a) funds for working capital, equipment, real estate, refinancing debt, or business acquisitions. Terms stretch up to 25 years for real estate and 10 years for equipment or working capital.
Interest rates are competitive—typically prime rate plus 2-3%. The SBA guarantees up to 85% of loans under $150,000 and 75% of larger loans, reducing lender risk.
Good news for manufacturers: SBA waived upfront fees for manufacturing loans up to $950,000 through September 2026. This saves thousands in closing costs.
Requirements:
- Operate for profit in the U.S.
- Meet SBA size standards for your industry
- Demonstrate ability to repay
- Have reasonable owner investment
- Exhaust other financing options first
SBA 504 Loans
504 loans finance major fixed assets like real estate and heavy equipment. They’re structured as two-part loans—50% from a lender, 40% from a Certified Development Company (CDC), and 10% down payment from you.
This structure offers lower down payments than conventional commercial real estate loans. Terms extend up to 25 years with fixed interest rates, providing payment stability.
Manufacturing businesses benefit from waived fees on all 504 loans through September 2026.
SBA Microloans
Microloans provide up to $50,000 (average $13,000) through nonprofit community lenders. These work well for startups, businesses in underserved communities, and entrepreneurs with limited credit history.
Credit requirements are flexible—some lenders approve borrowers with scores in the 500s. Many programs include free business training and mentoring alongside funding.
Use microloans for working capital, inventory, supplies, furniture, fixtures, or equipment. You cannot use them to pay existing debts or buy real estate.
SBA Manufacturers’ Access to Revolving Credit (MARC)
MARC is the SBA’s first loan program dedicated specifically to small manufacturers. It provides revolving credit lines for ongoing production needs, inventory purchases, and working capital.
This program addresses a critical gap—manufacturers need flexible funding that adjusts with production cycles rather than fixed-term loans.
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Traditional Business Loans from Banks
Commercial banks offer term loans and lines of credit with competitive rates for qualified businesses.
Bank Term Loans
Term loans provide a lump sum you repay over a fixed period with regular payments. Banks typically offer $25,000 to $500,000+ with 1-10 year terms.
Best uses:
- Major equipment purchases
- Facility expansions
- Large inventory buys
- Business acquisitions
Requirements are stricter than SBA loans. Banks want 680+ credit scores, 2+ years in business, strong revenue, and collateral. They may require personal guarantees from owners.
Interest rates depend on your creditworthiness and collateral—expect 6-12% for well-qualified borrowers.
Business Lines of Credit
A line of credit works like a credit card for your business. Your lender approves a maximum limit, you draw funds as needed, and you pay interest only on what you use.
Lines of credit excel for managing cash flow gaps, covering seasonal expenses, or handling unexpected costs. As you repay the balance, available credit resets for reuse.
Most banks offer $10,000 to $250,000 lines with 12-month renewal periods. Rates run 7-20% depending on your credit and relationship with the bank.
Alternative Business Financing Options
Alternative lenders provide faster funding with more flexible requirements than traditional banks.
Online Business Loans
Fintech platforms process applications quickly using automated underwriting. You can get approved and funded in 24-72 hours versus weeks with banks.
Online lenders accept lower credit scores (often 600+) and shorter time in business (6-12 months). They evaluate cash flow and revenue more heavily than traditional metrics.
The tradeoff? Higher interest rates—typically 10-30% annually. Online loans make sense when speed matters or you don’t qualify for bank financing.
Invoice Financing and Factoring
Turn unpaid invoices into immediate cash. With invoice financing, you borrow against outstanding invoices and repay when customers pay. With factoring, you sell invoices at a discount for instant funds.
This works perfectly for B2B companies with 30-90 day payment terms. You get working capital without waiting months for customer payments.
Costs range from 1-5% per month depending on your customers’ creditworthiness and invoice terms.
Merchant Cash Advances (MCAs)
MCAs provide upfront cash in exchange for a percentage of future credit card sales. Repayment happens automatically as customers make purchases.
These fund quickly (often same-day) and don’t require good credit. However, MCAs are expensive—effective annual rates often exceed 40-60%.
Use MCAs only as a last resort. The daily deductions can strain cash flow during slow periods.
Equipment Financing
Equipment loans specifically finance machinery, vehicles, technology, or other equipment. The equipment itself serves as collateral, making approval easier.
Terms match the equipment’s useful life—typically 2-7 years. Rates run 5-20% depending on the equipment type and your credit.
Some programs offer 100% financing with no down payment, preserving your working capital for operations.
Revenue-Based Financing
Revenue-based financing advances capital in exchange for a percentage of your future revenue until you repay a predetermined amount.
Payments fluctuate with sales—higher during busy months, lower during slow periods. This flexibility helps businesses with seasonal or unpredictable income.
Software companies, subscription businesses, and e-commerce firms use this frequently. Expect to repay 1.2-1.5 times what you borrow.
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Small Business Grants: Free Money That Doesn’t Require Repayment
Grants provide free funding you never repay—but they’re highly competitive and usually serve specific purposes.
Federal Government Grants
Federal grants rarely go to for-profit small businesses. Most target nonprofits, research institutions, or businesses developing new technologies.
SBIR and STTR Programs: Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants fund research and development. Awards range from $50,000 to $1 million+ across multiple phases.
These grants support businesses developing:
- New technologies
- Medical devices
- Scientific innovations
- Defense applications
Search available federal grants at <a href=”https://www.grants.gov” rel=”nofollow”>Grants.gov</a>, which lists thousands of opportunities from 26 federal agencies.
State and Local Grants
State governments offer grants for economic development, job creation, and specific industries. Programs vary widely by location.
Common state grant categories:
- Manufacturing and production
- Technology and innovation
- Rural business development
- Minority-owned businesses
- Women-owned enterprises
- Veteran entrepreneurs
Check your state’s economic development website for available programs. Many require matching funds or have geographic restrictions.
Corporate and Private Grants
Corporations run grant programs to support small businesses and community development.
Amex Shop Small Grants: American Express offers $20,000 grants to brick-and-mortar businesses with 20 or fewer employees. Applications typically open annually.
Awesome Foundation: Awards monthly $1,000 grants through 84 independent chapters worldwide. Any project can apply—no strings attached.
Industry-specific programs: Many industries have grant programs through trade associations or corporate sponsors. Research associations in your field.
Funding for Businesses With Bad Credit
Poor credit doesn’t eliminate funding options—you just need to know where to look.
Community Development Financial Institutions (CDFIs)
CDFIs are nonprofit lenders serving underserved entrepreneurs and communities. They provide loans when traditional banks say no.
CDFIs evaluate business potential and community impact over credit scores. They often accept scores in the 500-600 range.
Many CDFIs offer:
- Business mentoring
- Financial education
- Networking opportunities
- Lower rates than alternative lenders
Find CDFIs through the <a href=”https://www.cdfifund.gov” rel=”nofollow”>CDFI Fund</a> directory.
Microlenders
Microlenders specialize in small loans for startups and businesses with limited credit history. Average loan size is $13,000 with maximums around $50,000.
Requirements focus on business viability rather than credit scores. Some microlenders work specifically with:
- Minority entrepreneurs
- Women business owners
- Veterans
- Immigrants
- Rural businesses
Secured Loans Using Collateral
Offering collateral reduces lender risk, making approval easier despite bad credit. You can secure loans with:
- Real estate
- Equipment
- Inventory
- Accounts receivable
- Savings accounts or CDs
Just understand the risk—if you default, the lender seizes your collateral.
Borrowing Against Retirement Accounts
Some entrepreneurs borrow from 401(k)s or IRAs through Rollover for Business Startups (ROBS). This accesses your retirement funds without taxes or penalties.
ROBS involves complex rules and setup costs. Consult a financial advisor before using this option—mistakes trigger massive tax bills.
How to Choose the Right Funding for Your Business
Match funding type to your specific situation and needs.
Consider Your Timeline
How quickly do you need funds?
Immediate (1-3 days): Online loans, merchant cash advances, business credit cards Fast (1-2 weeks): Invoice financing, equipment loans, alternative lenders Medium (2-4 weeks): Bank lines of credit, microloans Slow (30-90 days): SBA loans, bank term loans, commercial real estate loans
Evaluate Total Cost
Look beyond interest rates to understand true borrowing costs:
APR (Annual Percentage Rate): Includes interest plus fees Factor rates: Alternative lenders quote factor rates (1.1-1.5) instead of APR Origination fees: Upfront charges of 1-5% Monthly maintenance fees: Ongoing costs for lines of credit Prepayment penalties: Fees for early repayment
Calculate total repayment amount to compare options accurately.
Match Terms to Your Needs
Short-term needs (under 1 year): Use lines of credit or short-term loans Medium-term needs (1-5 years): Term loans, SBA loans Long-term needs (5-25 years): SBA 504 loans, commercial mortgages
Don’t borrow long-term for short-term needs—you’ll pay unnecessary interest. Don’t borrow short-term for long-term needs—the payments will crush cash flow.
Assess Your Qualification Likelihood
Be realistic about approval odds. Requirements typically include:
Credit score minimum: 500-720+ depending on lender type Time in business: 6 months to 2+ years Annual revenue: $50,000 to $100,000+ minimum Profitability: Many require positive cash flow Collateral: Sometimes required, sometimes optional
Apply where you meet requirements to avoid hard credit inquiries that hurt your score.
The Business Loan Application Process
Understanding the process helps you move faster and increase approval odds.
Documents You’ll Need
Gather these before applying:
Personal information:
- Driver’s license or government ID
- Social Security number
- Personal tax returns (2-3 years)
- Personal financial statement
Business information:
- Business tax returns (2-3 years)
- Bank statements (3-6 months)
- Profit and loss statements
- Balance sheet
- Business plan
- Articles of incorporation or business licenses
How Lenders Evaluate Applications
Lenders assess the “5 C’s of Credit”:
Character: Your credit history and payment behavior Capacity: Ability to repay based on cash flow Capital: Your investment in the business Collateral: Assets securing the loan Conditions: Economic factors and loan purpose
Strong businesses demonstrate all five. Weak areas in one category can be offset by strength in others.
Tips to Improve Approval Odds
Build business credit: Establish a separate business credit profile with vendors and trade lines.
Increase revenue: Higher sales improve capacity to repay.
Reduce existing debt: Lower debt-to-income ratio improves qualifications.
Prepare a solid business plan: Show lenders exactly how you’ll use funds and generate returns.
Strengthen personal credit: Pay all bills on time, reduce credit card balances, dispute errors.
Offer a larger down payment: More skin in the game reduces lender risk.
Red Flags: Avoiding Predatory Lenders
Not all lenders operate ethically. Watch for these warning signs:
Unusually high interest rates: Rates significantly above market standards Excessive fees: Fees exceeding 5% of loan value Lack of transparency: Won’t disclose APR or full terms Pressure tactics: Rushing you to sign without reviewing Requests to lie: Asking you to inflate income or sign blank forms No license verification: Can’t prove they’re licensed in your state
Before signing anything:
- Compare multiple offers
- Read all documents thoroughly
- Consult an attorney or accountant
- Verify the lender’s license
- Check Better Business Bureau complaints
Legitimate lenders want you to succeed—predatory lenders just want fees.
Using SBA Lender Match
SBA’s Lender Match connects you with participating lenders interested in your loan request.
The free online tool asks about:
- Your business and industry
- Loan amount needed
- How you’ll use funds
- Your location
Based on your answers, Lender Match generates a list of potential lenders. You receive contact information for up to five lenders within two business days.
This saves time compared to contacting banks individually. Matched lenders already work with the SBA and accept businesses in your situation.
Building Business Credit for Better Funding
Strong business credit unlocks better rates and higher limits.
Establish Business Credit
Get an EIN: Apply for an Employer Identification Number through the IRS.
Register your business: Formally establish your legal entity (LLC, Corporation, etc.).
Open business accounts: Separate business bank accounts and credit cards.
Get a D-U-N-S number: Register with Dun & Bradstreet for business credit tracking.
Build Credit History
Use net-30 vendors: Buy from suppliers offering 30-day payment terms and reporting to credit bureaus.
Open a business credit card: Use it regularly and pay in full monthly.
Finance equipment: Equipment loans report to business credit bureaus.
Keep utilization low: Use less than 30% of available credit.
Pay everything early: Payment history matters most.
Monitor Your Business Credit
Check reports regularly from:
- Dun & Bradstreet
- Experian Business
- Equifax Business
Dispute errors immediately. Even one mistake can significantly impact your score.
FAQs
What credit score do I need for a small business loan?
Most traditional banks require credit scores of 680 or higher. SBA loans often accept scores down to 640. Alternative lenders may approve scores as low as 600, while microloans and CDFIs sometimes work with scores in the 500s. Your score determines not just approval but also interest rates—higher scores get better rates.
Can I get a business loan with no revenue?
Yes, but options are limited. Startups without revenue can pursue SBA microloans, personal loans for business use, business credit cards, or loans backed by collateral or personal guarantees. Many lenders want to see at least 6-12 months of revenue history, so building even modest sales history significantly expands your options.
How long does it take to get approved for an SBA loan?
SBA loans typically take 30-90 days from application to funding. The process involves multiple steps: application submission, lender review, SBA approval, and closing. You can speed things up by having all documents ready upfront and responding quickly to lender requests. Some SBA-preferred lenders have expedited approval authority that cuts weeks off the timeline.
Do I need collateral for a small business loan?
It depends on the loan type and amount. SBA loans under $25,000 typically don’t require collateral. Larger SBA loans and most bank loans do. Alternative lenders often offer unsecured loans but charge higher interest rates. If you lack collateral, focus on unsecured options, microloans, or lenders that accept accounts receivable or inventory as security.
What’s the difference between a loan and a grant?
Loans must be repaid with interest. Grants are free money you never repay. Loans are widely available for most business purposes and credit levels. Grants are highly competitive, usually restricted to specific purposes (research, technology, community development), and rarely available to typical for-profit small businesses. Don’t spend months chasing grants when loans better match your needs.
