March 6, 2023 By Suzanne Robertson

Navigating all the different types of business financing available to small business owners can be confusing. Additionally, busy entrepreneurs may not have the in-depth financial background to make the best decision for their unique business. 

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From personal loans to SBA loans, we’ve reviewed the most common choices so you can find the best fit. No matter what route you go, protect your credit scores. Strong business credit and personal credit scores are important to help you qualify for low-cost funding when you need it. 

Here are options for small business owners to explore. It’s a best practice to check with your accountant or another financial professional to help you determine the funding right for you. 

SBA Loans

An SBA loan is a type of long-term loan secured, in part, by the US Small Business Administration. The agency makes a guarantee to the bank that it will cover a percentage of your desired loan amount if you can’t make your payments. This is a win-win for small business owners and lenders: you benefit from low rates and long terms, while lenders have the advantage of additional support from the government.

  • SBA loans are known as the “gold standard” in small business, low cost financing.
  • The 7(a) program is for established small business owners with healthy credit scores. 
  • Business owners in need of additional working capital, high interest debt refinance or a commercial real estate purchase or refinance.
  • With low rates and long terms, monthly payments are affordable and won’t crunch cash flow. 

Learn more about SBA loans including requirements, use of proceeds, and time to fund here.

Term Loans

Term loans are a common source of funds that entrepreneurs use to develop their small businesses. The idea’s simple enough: you borrow capital and then repay with interest on a regular basis. But it can start getting more complex once all the factors are considered.

These loans are typically differentiated most commonly into three categories, specified by their terms.

  • The first is short-term loans with terms that range from a few weeks to no longer than a few years. These fast funds can be useful in times of emergency because most businesses are eligible to receive their deposit very quickly. However, don’t look past the fact that these accessible funds come at a steep price. Their high interest rates and frequent payments can actually cause more harm than good to your business cash flow.
  • Medium-term loans typically have a life of several years and are mostly offered by traditional bank lenders. You’ll probably find that they’re more affordable since they have lower rates and monthly payments, but also come with more eligibility requirements and slower time to funding.
  • Long-term loans provide you with the most sustainable option. Because they last the longest, the amount owed can be spread out into smaller monthly payments with lower interest rates, reducing negative impact on monthly cash flow.

For information on Bank Term loans from banks in the SmartBiz network, visit the SmartBiz Loans website

Line of Credit (LOC) 

A traditional business loan is a lump sum of borrowed money, but an LOC is a revolving line you can draw against as you need it, similar to a business credit card. This means that you only pay interest for the money that you use. Typically, an LOC may be extended by a large traditional bank, a small local bank, or an online lender.

Generally, the first step is to determine how you will use the funds and how much money you need to access. With this information, you may adjust your budget accordingly. Some lines of credit have a draw period. This is a period of time when you can withdraw and pay back funds. For instance, a 12 month draw period allows you to withdraw money for a period of 12 months. The typical draw period on an LOC from a bank in the SmartBiz® network is for 12 months. 

After the 12 month draw period, SmartBiz customers may reapply for an additional 12 month draw period on an LOC, a bank term loan, an SBA loan, or other financing options that our network offers.

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Equipment financing

An equipment loan is a form of small business financing that is used specifically for equipment purchases. If you don’t want to purchase an item upfront, you can use the funds from the loan to expense the cost and then repay the principal over a longer period of time. That way, you can divide up the cost into more manageable payments. You’ll receive a lump sum in your business account that requires repayment on a regular basis, typically monthly. The cost of borrowing funds will depend on the amount, APR, and term length. To determine your monthly payment, you’ll need to be clear on all associated rates, fees, and obligations, so a loan calculator can come in handy. Many times, the piece of equipment will act as the collateral and secure the loan but be sure to check with your lender about specific application requirements.

Invoice financing

Invoice financing is the process of borrowing money against your outstanding invoices. You’ll present the sum of your accounts receivable – and the invoices underlying it – to a finance company. You’ll occasionally see invoice financing referred to as “invoice discounting,” though “invoice financing” is the more widely used term. It’s also more accurate: Your clients don’t receive a discount on what they owe you if you obtain funding through invoice financing. Your finance company will lend you approximately 80 percent of your unpaid invoice amount. You can obtain this funding as a standard business loan or as a business line of credit. It’s then your responsibility to obtain customer payment. Once the customer pays, you’ll subtract the amount you were lent from the total of your invoices. A portion of that difference will go to the finance company as fees and interest.

Merchant cash advances 

If you sign on with a merchant cash advance company, they will provide funds to your business in exchange for a percentage of the daily credit card income. A processor clears and settles the credit card payment, drawn from customers' debit and credit-card purchases on a daily basis, until the obligation has been met. Most providers form partnerships with payment processors and then take a fixed or variable percentage of future credit card sales. An MCA is not a loan in the traditional sense. If you take out an MCA, a financing company advances cash to you in a lump sum. They then take a percentage of your daily credit card and debit card sales, on top of charging a fee. 

Angel investors

Angel investors are high-net-worth private investors that provide entrepreneurs and small businesses with either a one-time investment or an ongoing injection of financial support, in return for ownership of equity in the company. When an angel investor is a part of your business, you should approach him or her for funds to cover your major investment needs. While investment from an angel investor can be a great way of securing funds for your immediate requirements, funding via angel investors does come with risks, but it usually comes with more favorable terms in comparison to other lending options. Angel investors are often friends or family, so if you want to go down this funding route, start by asking the people you know if they would be interested in supporting your business.

Personal loans from family and friends

One of the most accessible options is borrowing funds from family and friends. If you approach the process in a professional manner, you’ll see the benefits of “lenders” who are already familiar with you and your business story. Because of your close relationships, you won’t have to demonstrate your trustworthiness and your ability to see your promises through.

Provide an organized business plan describing how you’ll use the funds to help your company grow. Make sure to follow through with documentation rather than relying on informal agreements. Keep in mind that entering into this kind of financial partnership can put personal relationships at risk and may also adversely affect your ability to access other kinds of loans. 

Find personal loans and other reliable types of financing here: 5 Safe Funding Options for Your Small Business


A resource that’s becoming increasingly popular for initial financing is crowdfunding, through sites like Kickstarter and Indiegogo. This strategy relies on many smaller investments, whether it’s a few dollars or a few hundred dollars. It’s up to individuals to decide how much to contribute based on your pitch.

If all goes well, not only will you receive the funds you need, but you’ll also build a loyal customer base. You’ll need to prepare in advance of the launch, building up a strong community and spreading the word far and wide. Set your goal amounts as low as possible so you can exceed them. The contributions you collect can serve as an example of social proof, influencing potential donors to support your cause as well.

While there are some attractive benefits of crowdfunding for your business, be wary of the disadvantages. Find out why it can be a risky choice here: Reasons to Avoid Small Business Crowdfunding.

Business credit cards

Getting a credit card can be a flexible option when it comes to financing your small business if used correctly. Because they are a revolving line of credit, you can continue borrowing without depleting your available funds. In addition, they offer discounts and rewards for spending. With your credit card, you can also take out a cash advance, a type of short-term loan that allows you to withdraw cash which you then repay with interest. We’ve outlined the benefits of a business credit card on the SmartBiz Blog: 6 Benefits of Using a Business Credit Card.

At the same time, be sure to review terms and conditions carefully. Understand and prepare for payments and adverse consequences if you are unable to meet your obligations. If you’re the sole proprietor of your business, your personal credit score will be impacted by late payments.   

Final thoughts 

SmartBiz is the leading AI-powered financing platform connecting small businesses with SBA, bank term loans, and flexible financing options. Simply tell us about your business and goals, and our technology will take care of the rest. No faxing, printing, or mountains of paperwork required. Start an application here today.

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