How to Finance Small Business Growth: 12 Ways to Consider

Most small business owners are always searching for ways to improve their business. However, any and all improvements you make require additional capital. That’s true whether your improvements entail buying commercial property, hiring more employees, upgrading your equipment, or expanding in other ways. Many financing options are available for these needs, so below, we’ve provided a comprehensive guide to how to finance small business growth.

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12 Ways to Finance Small Business Growth

Some business owners might seek term loans from a bank, whereas others might favor the backing of an angel investor. Somewhere in the below list of a dozen ways to obtain small business finances, you’ll find the best option for your situation.

1. Take Out Bank Loans

Traditional bank loans typically come with desirable terms for borrowers. They usually offer long-term financing with generous repayment periods and low interest. Additionally, banks won’t interfere with your everyday business operations, so bank loans can help you finance your business with minimal restrictions on your day-to-day.

However, most banks set high eligibility standards for their loans. That’s because banks are notoriously risk-averse in pretty much all their affairs, including lending. Additionally, bank loan applications can be considerably longer and more tedious than other loans.

The solution is often to work with a company that can connect you with bank loans – or, better yet, SBA loans. These companies often speed up the process and introduce a human element that’s missing otherwise. SmartBiz is a great example: It provides you with hands-on guidance and helps you easily compare loans. Whether you’re seeking bank loans or their borrower-friendlier SBA alternatives, SmartBiz is there with you at every step.

2. “Bootstrap” Your Business

“Bootstrapping” simply refers to when you use your own money – or the money your business earns – to fund your business. Since bootstrapping almost wholly removes external funding from the equation, you don’t have to waste time looking for investors or loans. Additionally, bootstrapping allows you to keep complete control over how you grow your business since you’re not beholden to anyone else. However, bootstrapping will rarely provide large amounts of money that you’ll need for certain large purchases.

3. SBA Loans

SBA loans are government-backed funding options that cater to the financial needs of small business owners. While the U.S. Small Business Association – the “SBA” in the title – oversees them, the agency doesn’t directly hand out loans to borrowers. Instead, the SBA empowers banks to extend more favorable loan amounts and terms to small business owners. As a result, many more borrowers can access small business loans with favorable rates and lengthy repayment periods.

4. Get Money from Friends and Family

As the name suggests, friends and family financing is when the people in your life help you finance a business venture. Funding your business through friends and family can offer similar benefits to bootstrapping – for example, the lack of investor involvement in business decisions. However, that condition is dependent on your relationship with your loved one. Maybe your uncle wants a say in how you run things in exchange for the money you need for your second location.

Friends and family funding has a few pronounced disadvantages. For starters, it’s often tricky going into business with a family member because their financial health depends on your success. Additionally, the people in your life might not have enough money for your needs, whereas other funding routes can drastically increase your cash flow.

5. Open a Business Line of Credit

A business line of credit is like a credit card but on a larger – and, often, more affordable – scale. The lender sets a credit limit that you can borrow against for any possible business-related expense, but you don’t have to use the whole amount. You won’t pay any fees or interest on any funds you don’t use, so business credit lines can be more affordable than other funding routes.

Many small business owners use business credit lines to stimulate cash flow during slower quarters. At these times, credit lines can help employers pay employees and purchase equipment without going in the red. Additionally, reliably paying off credit lines can build a trustworthy credit history that helps you qualify for financing in the future. But if you miss a payment, you’ll pay high fees, and your interest rate will be high even if you pay on time.


6. Work with Angel Investors

Angel investors are individuals who invest large amounts of money into small businesses (usually startups) to help them grow. In doing so, they earn equity in your company. That means they earn a stake in your company, giving them a certain amount of say over your operations.

Additionally, in most cases, angel investors won’t demand their money back if your business fails. However, if you want full control over how your business runs, an angel investor might not be suitable for your funding.

7. Crowdfund Your Company

Crowdfunding is a challenging but potentially rewarding way to get the money necessary to grow your business. It entails financing your business with direct donations from the public, typically in return for a reward or some type of perk. While advertising your product on a crowdfunding platform doesn’t guarantee a successful campaign, you’ll automatically build a customer base if you do attract backers.

8. Get a Business Credit Card

Business credit cards function similarly to lines of credit, though in some cases, credit lines become inaccessible, and that's not true of credit cards. While you can use business credit cards for just about anything, their credit limits tend to be lower than lines of credit. However, they often offer interest-free introductory periods and valuable reward programs.

9. Obtain Funding from a Venture Capitalist

Venture capitalists are individuals or companies that invest large sums of money into small businesses to get more significant returns if the business succeeds. While the extra capital can help you grow your business, the investor will almost always insist on obtaining a controlling stake in your business. If you’re willing to lose some control over your company, there’s an established process for getting venture capital:

  • Find an investor. Research reputable venture capitalist firms to find interested, suitable backers.
  • Share your business plan. Present your business plan to the potential investor so they can determine if funding you is worth the risk.
  • Go through due diligence review. The investor will continue to review your company from top to bottom, including your financial statements such as your balance sheets and income statements.
  • Work out terms. If the potential backer is satisfied with what they see, you can work out the terms and conditions of their investment.

10. Seek Equipment Financing

Equipment financing is a loan plan offered specifically for equipment expenses. Typically, equipment loans inherently come with collateral: Anything you buy with the lender's funds becomes collateral if you can’t repay the loan. That means no putting up your current assets for seizure, making the loan relatively low-risk.

11. Pursue Equity Financing

Equity financing is the sale of shares in your business to an investor in return for usable capital. It offers a fast influx of money without any debt, and your funds can immediately go directly to growing your company. However, any time someone else buys shares in your company, they get some control over your operations. That takes you out of the driver’s seat to an extent, which isn’t ideal if you want to be the guiding light for your business.

12. Merchant cash advances

If your business accepts credit cards, you may be able to obtain a merchant cash advance through your credit card processor. To repay this small business loan, you’ll send a small amount of your daily credit card income to the lender. This process is typically automatic, making these loans easy to repay. However, their interest rates can be as high as 200%, so you could wind up repaying twice what you initially borrowed.

Final thoughts

There are many financing options available for small business owners, and each one has its unique advantages and disadvantages. Choosing the right funding opportunity for your business isn’t just about picking the one with the highest or quickest payout. Instead, it’s about selecting the loan plan that helps your business thrive for as long as possible.

WHAT YOU NEED TO KNOW: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.