Finding the right small business funding can make all the difference for your business’s success. In 2021, almost 62% of small businesses used personal funds to cover gaps in their business’s cash flow. While this practice likely puts a lot of strain on the business owner’s personal assets, getting enough business funding may help.

In this article, we cover why small business funding is important, how to figure out how much funding you need, and your best business financing options.

Why Is Funding Important for Small Businesses?

There are many reasons small business funding is essential. Many small business owners and entrepreneurs need money to get their idea off the ground — so they can’t even get started without the right small business loans. Lenders also often require small businesses to complete market research before they will offer funding, but even market research requires money. 

Having enough business funding is also often the only way to expand your business or develop new products, which are two foundational factors of many successful businesses. It may not be possible to grow your business using only your profits. 

Even if you’re not looking to expand your business, there are practically endless uses for small business funding. Having enough business funding may help you stabilize your cash flow during the slow season, increase your working capital, meet your financial obligations, or maintain enough inventory to keep up with customer demand.

Is It Difficult To Get Small Business Funding?

Whether or not it’s a challenge to get small business funding depends on your business’s qualifications, the type of financing you apply for, and the loan amount. The U.S. Small Business Administration (SBA) has a notoriously difficult application process — but online lenders may have more flexible eligibility requirements. Whether or not you qualify depends on the individual funding option. 

The other factors that matter are your business details, like your personal and business credit scores, your time in business, and your annual revenue. If you need help with your business credit scores, check out Nav’s guide on how to establish business credit. Other factors are whether or not you have a solid business plan and how much you’re asking for in loan funds.

How Can I Get Funding for My Business Quickly?

Finding funding opportunities that are fast may seem daunting, but there are many options that may be available to you. Typically, online or alternative lenders can give you business funding more quickly than traditional banks. Some great options that target various business purposes are:

• Short-term loans
• Microloans
• Business lines of credit
• Equipment financing
• Invoice financing

Many online lenders may offer you simple online applications and funding as quickly as one or two days. 

However, keep in mind that interest rates for these business financing options may be significantly higher than traditional loans. Be sure to look at all the terms and payment requirements before you agree to borrow. 

How Much Funding Does My Business Need?

The amount of small business financing your business needs depends on what you’ll use the money for and what you can afford. If you’re looking to launch a business, estimate your startup costs — which will depend heavily on whether you’ll open a brick and mortar location, an e-commerce business, or will sell services. On the other hand, if you need funding for a specific purpose (like to launch a new product), make sure you don’t overborrow since you’ll have to pay interest on every dollar you owe.

Before borrowing, you’ll want to calculate the cost of debt so you are sure of how much you will owe on all of your business debts. Then you’ll be able to tell how much money you can truly afford to borrow. 

Ways To Fund a Business

There are two main methods of funding a business: take on debt or give away equity to investors. Here we explore the most common business financing options.

1. Take out a bank loan

Term loans are offered by banks and other financial institutions for a specific amount with monthly repayment requirements. You can find many of the same types of financing that online lenders offer, like invoice financing and lines of credit. Borrowers receive an interest rate based on their business factors, and the interest rates are usually low with bank loans. However, traditional loan programs may be difficult for new businesses or businesses with bad credit to qualify for.

2. Get online financing

Online lenders may have less stringent requirements for their business applicants, so it may be easier to qualify than with a traditional bank. The application process with this type of lender is often fully digital so it can be completed from anywhere and takes only a few minutes. Also, they may be able to send you the money within a day or two of being approved. But, as mentioned, the interest rates may be higher with an online lender than a traditional bank loan so you’ll want to pay them off quickly.

Here are a few great lending options:

3. Apply for an SBA loan

The federal government backs loans from the U.S. Small Business Administration, so the interest rates are often among the lowest on the market. The low rates make this financing option highly sought after. However, it can be very tricky to qualify for an SBA loan, so review the qualification requirements in detail before applying.

The government also supports Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR), which offers funding to domestic small businesses looking to increase innovation.

4. Obtain a small business grant

There are many grant programs available to small businesses — and the best part is that you don’t have to repay them. Small business grants are offered by the government, by non-profits, and by companies as a way to assist struggling businesses. For grants supported by the federal government, head to Grants.gov. 

The Nav Small Business Grant is a quarterly grant open to all small businesses in the United States. Check our website to find the next time applications open. 

5. Use crowdfunding

Crowdfunding is a way to use your community and your network to raise business funding. Reward-based crowdfunding is the type of crowdfunding most people know: you contribute a specific amount and you get something small in return. You might get a product or first access to a launch, but you know in advance what you get for your donation. Donors don’t expect to get paid back for their contributions, so you can avoid paying interest through crowdfunding.

6. Find equity investors

Equity financing is a way to get small business funding without going into debt. You bring on investors in exchange for equity in your business. This kind of financing is most often used by startups, but it could be the right option for you, as well. Just keep in mind that you have to give away some control of your business in exchange for the investments, so make sure you’re comfortable with that.

Funding Payroll Expenses

Meeting payroll is one of the most important obligations you have as a small business owner. Your employees are counting on you to pay them in full and on time. The good news is that if you’re short on cash, there are several business financing options. You can turn to a payroll loan that must be used specifically for payroll. Or you can use flexible small business funding options like business loans, merchant cash advances, or even business credit cards to open up cash flow and make payroll. 

Funding a Business Expansion

Expanding your business can be an exciting prospect, but you need a way to pay for it. Your method of financing will depend on how you’re planning to expand. For example, if you need to purchase real estate for a warehouse or a brick and mortar location, you might turn to commercial real estate loans. If you plan to increase your inventory after your marketing campaign brought in a slew of new customers, you could consider an inventory loan. But many of the same small business financing options are available to use for an expansion.

Your Next Steps 

For training and advice on all small business financing matters, you could look up a Small Business Development Center near you. They provide business programs that help small businesses build and maintain success. And Nav is always here to help. Signing up for a free Nav account gives you instant access to our extensive small business funding options. It’s the easiest way to find the right small business financing for you.