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The Ultimate Guide to Small Business Financing: Which Type of Funding to Apply for

A typewriter typing 'Funding Round'

Once you’ve established your business, you’ll realize that you need more capital to grow it. There are times when business is slow, and owners struggle to make timely payments. Moreover, a global financial crisis can affect your business’s progress and limit your cash flows.

However, small business loans can help you bounce back. It feels daunting to apply for funding or a loan, but the process is more straightforward than you might think. Many businesses can get financial assistance when they apply for it; loans to the private sector in the US reached 2425.83 billion USD in October this year. Commercial banks lend 16 billion USD worth of credit and generally don’t give credit access to small businesses.

If you’re not sure where to look for funding, continue reading about the different types of financing available for small businesses.

 

A person signing a document

Community Development Finance Institutions

There are several money lending institutions out there. They’re private financial institutions that enable low-income business owners to start and run their business ventures. They finance community businesses like small businesses, NGOs, commercial real estate, microenterprises, and more.

These finance institutions help struggling businesses with capital financing. People who borrow from CDFi don’t need valuable collateral as some other lenders do.

SBA Loans

Many traditional banks don’t lend money to small businesses. That’s because they don’t have enough assets to offer as collateral, don’t have high credit scores, and their business models don’t generate enough revenue.

For these reasons, you should apply for an SBA loan. This loan has different variants, like the 7(a), 504 loans, and microloans.

The SBA 7(a) loans aid small businesses with special requirements. When your business involves real estate, working capital, and refinancing current business debt, they’re your best choice. The maximum amount this loan will give you is 5 million USD.

You’re eligible for SBA 504 loans if your business’s net worth is under 15 million USD. It’s a long-term program with a fixed rate, and you can grow your business by installing new facilities, buying existing buildings, machines, and equipment. You can’t use the 504 loans for working capital and refinancing debt.

SBA microloan programs lend 13,000 USD on average but can go up to $50,000. This loan is perfect if you have a small business and need to improve or repair and re-open it. You can’t use this loan to invest in real estate or finance existing debt.

The SBA doesn’t directly transfer funds to your bank account; you can get SBA loans via authentic community organizations and loan lending institutions.

People signing documents for a business loan

Small-Business Grants

Just because you’ll eventually generate funds with your business doesn’t mean you can only qualify for loans. It would help if you tried applying for a grant for small businesses. If you are eligible, you won’t need to worry about paying back the sum coupled with an interest.

NGOs and government programs usually offer these grants aimed at specific industries to encourage people to continue their businesses. Many grants were made available during the pandemic when thousands of companies had to alter their business models.

Online Loans

If you need funds on an emergency basis to pay rent, wages, or perform repairs, turn to an online lender. You can also turn to online lenders if you don’t have enough personal credit or solid financial backing to access bank credit.

Online lending includes lines of credit, P2P programs, and working capital loans. These programs are a common financing alternative to banks for struggling business owners with bad credit.

The advantage of online loans is that there’s no physical meeting between you and the lender. This eliminates the chance of cross-selling; when you’re persuaded to buy other services like an auto-loan in return for a lower interest rate.

Online lenders might offer lower rates overall because they don’t need extra money to manage the physical branches of their organization.

Credit Union Financing

Credit unions are similar to banks, but they’re entirely non-profit. Credit Unions offer various loans that work in favor of different types of businesses.

Installment loans are common, and you might already know about them. Credit unions loan a sum that the business owner can pay back in installments. You’ll have to cover the original sum of money in addition to the interest rate. If you need the loan to invest in a long-term project like business growth, you can get up to $50,000 from credit unions. You won’t have to pay upfront, and the payment plan is set according to your needs.

Credit Unions also offer a business line of credit. A business line of credit is a great way to tackle cash flow problems and work as an emergency fund. Suppose you have an unsteady cash flow and often experience slow periods in your business. In that case, you should opt for a business line of credit because you can use these funds at any time.

However, a business line of credit has a higher interest rate than installment loans because they’re riskier. But interest only applies to credit you’ve already used.

 

people discussing business funding forms

Venture Capital

Venture capital funds are private equity given to small businesses that investors believe have a high potential for long-term growth. Venture investors are experienced people who not only invest monetarily but also provide managerial expertise.

Venture capital investments are an excellent choice if you aim to use the funding to hire new staff, expand your target market, and increase market spending.

If you want to check out financing options for your business or company, look into QuickAssist. QuickAssist is the best alternative financing company that connects its clients with the top lending companies in the US.

You’ll need to fill out a short form, and you’ll get multiple funding offers to review. Get financing for your business in just a few days. We have several business financing solutions for you to select for your business.

Our experts serve as consultants so you understand which business financing options work best for your business. Apply for a loan today or contact us to ask queries or to learn more about our services.

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