Despite the mountain of media coverage devoted to venture capital investments, VC funding is an extremely rare source of funding the founding or operation of a typical small business. Businesses along Main Street get started with money from a long list of sources, none of which involve the kind of funding you read about on the website Tech Crunch. Fortunately, if you have saved up some equity and have a good credit score, there is a wide array of potential sources for funding and founding a small business. Unfortunately, each one has a set of pros and cons, and none are without risk. So, as we always say when sharing anything related to money, seek professional advice. Talk with any trusted advisors and experts like a CPA, business lawyer, and financial advisor.

With that caveat, here are 9 funding sources available to small businesses compiled by Kiplinger.com and the SmallBusiness.com WIKI. With the right qualifications and criteria, some of the sources could be just right for you, depending on where you are currently in the stage of starting or growing your business.

1 | Friends and Family

Interest rate | Set by lender and borrower
Repayment schedule | Set by lender and borrower
Pros | Easy access to money at potentially lenient terms
Cons | Requires friends and/or family as funding source

When it becomes difficult to obtain money from a conventional source (i.e., a bank), many people start or purchase a business with capital invested by friends and family. These days, there are ways to add structure and formal terms to such loans. Companies like LendingKarma and LoanBack can help formalize and manage the process of borrowing money from friends or family. For a small fee, your business and your sources of seed money can securely exchange money through such online platforms, utilizing features like payment tracking and e-mail reminders to ensure that lenders get paid back on time.

2 | Credit Cards

Interest rate | 0%-30%
Repayment schedule | 30 days
Pros | Readily available
Cons | Expensive, relatively low borrowing limits

If you’re thinking of going this route, make the most of credit cards with different features for different expenses. For example, Kiplinger.com suggests strategies like using a credit card with a low-interest rate, preferably a 0% introductory offer, to be used for business purchases. For large cash expenditures, they suggest using a card with no fees for cash advances, then transfer the balance to the card with the 0% interest rate.

3 | Crowdfunding

Interest rate | N/A (payback in form of equity or rewards)
Repayment schedule | 5+ years for equity, 1+ years for rewards
Pros | Access to diverse pool of backers, good way to establish engaged customer base
Cons | Relatively slow process to accumulate funds

Popularized by platforms such as Indiegogo and Kickstarter, crowdfunding has evolved in the last couple of years into a viable funding alternative for those looking to start a business. As we have described in a SmallBusiness.com guide to crowdfunding, there are two main types of crowdfunding: reward- and equity-based. Reward crowdfunding allows entrepreneurs to receive financing by offering, say, a future product in return for capital. Equity crowdfunding allows entrepreneurs to reach investors interested in owning a piece of their start-ups.

4 | Term Loans

Interest rate | 6%-30%
Repayment schedule | 1-5 years
Pros | Short waiting time, no collateral
Cons | High-interest rates

For an online term loan, you can typically fill out an online application within 15 minutes. Once all documentation is verified, you get the money deposited in your bank account in a day or two. Companies such as Prosper rely on credit-scoring algorithms and third-party data to expedite the lending process and reduce the cost of originating loans for less-established firms.

5 | Low-Interest Small Business Loans

Interest rate | 8%-15%
Repayment schedule | 1-5 years
Pros | More welcoming to less-established businesses; many include access to financial education
Cons | Low borrowing limits, long application process

Small businesses that have difficulty obtaining a bank loan can generally get financing with help from a Small business Development Center (SBDC), which provides assistance to local small firms. The mission of these companies is to provide capital and other resources to entrepreneurs who don’t meet the criteria banks typically require for credit score, revenue or operating history. (See the directory of SBDCs on the SmallBusiness.com WIKI.)

6 | Microloans

Interest rate | 7%-20%
Repayment schedule | 6 months-5 years
Pros | Friendly terms, low rates
Cons | Long review times

Microlenders are another source of loans for entrepreneurs. Typically offering small loans to businesses, they are a great option if you can afford to wait a while to receive funding. Generally, you’ll get solid loan terms from these lenders, such as long repayment schedules or no fees. Microlenders such as Kiva offer small loans to businesses with relatively low interest rates (0% in the case of Kiva). These companies focus on working with small firms that are typically underserved by traditional banks.

7 | Bank Loans

Interest rate | 10%
Repayment schedule | 5-10 years
Pros | Great terms and rates
Cons | Long application process involving much documentation

As profit margins tend to be slim on small-business loans, banks try to reduce their risk as much as possible. This means that you will need to present a complete loan package, including a personal financial statement, copies of personal tax returns and sometimes even a business plan. Banks also tend to give loans only to small businesses with collateral and a personal guarantee from the owner. Local banks may be better options because they know the local credit conditions. They often provide more access to a loan officer and put more emphasis on a borrower’s character rather than just the credit score.

8 | SBA Loans

Interest rate | Prime + APR (typically 3%-5%)
Repayment schedule | 10 years
Pros | Great terms and rates
Cons | Long application process and a lot of paperwork


A brief SBA-produced video describing its role in lending money to small businesses.


One financial product that banks are more eager to provide are loans backed by the Small Business Administration (SBA). The SBA doesn’t issue these loans directly. Instead, an authorized lender makes the loan, with the SBA guaranteeing a portion of it, reducing much of the risk for the lender. The SBA offers different types of loans, of which the 7(a) loan program is the most popular. These loans can be used for a variety of purposes — working capital, buying a franchise or refinancing debt. Different lenders may interpret the SBA guidelines differently, so if you have a solid application that gets turned down by one bank, you should try another bank.

9 | Receivable Financing

Interest rate | 15%-35%
Repayment schedule | 1-3 months
Pros | Quick access to funds
Cons | Collateral required

There are three types of Receivable financing (or factoring): Invoice factoring, invoice financing and receivable-based lines of credit. The interest rate for receivable financing is high compared with traditional bank loans, but getting the funding is relatively quick. So if you need a quick influx of cash, invoice financing can be a good short-term solution when you want to avoid lengthier loan applications.

VIA | Kiplinger.com

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