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How to obtain small business funding

Funding your business with personal savings alone may not be a long-term solution and at some stage you may want to consider these potential funding sources.

Published: May 20, 2015
Updated: February 11, 2017

Most business owners use their own cash or savings to initially fund their startup operations. But at some point, many of them need an injection of additional capital from an outside source.

What are the different potential funding sources that small business owners can consider? Below are a few ideas.

Explore small business funding options early

"Small business owners that present solid personal and business credit profiles typically do not need to invest more than they can reasonably afford," says Mike Strathman, division lending manager at Wells Fargo. "For younger businesses that need funding, I recommend they explore options offered by the U.S. Small Business Administration (SBA), most of which are available through reputable lenders."

The SBA offers several popular loan programs. For example:

  • 7(a) loans, the SBA’s flagship program, which can be used for a wide array of business uses, including purchasing or improving real estate, expanding operations, or refinancing existing business debt, and
  • Community Advantage programs, a version of 7(a) loans provided by non-profit lenders for small businesses in underserved communities.

The SBA also offers valuable resources to help you learn about government grants that might be available to your business.

"The SBA can provide funding for small businesses with terms that can make a loan much more accessible and affordable than a conventional bank loan," Strathman says. "However, an SBA loan cannot help a small business owner mitigate more serious flaws in their personal or business credit profile."

Seek funding based on your personal or business credit profiles

Even those with less-than-perfect personal or business credit profiles can secure small business funding and eliminate the need to invest too much personal capital. That said, many lenders look more favorably on business owners who have more of a personal stake in the success of their enterprise. 

When used responsibly, revenue-based financing or merchant cash advances — loans based on regular bank deposits and future credit card sales — might be funding options for some small business owners. With either, it is critical to work only with reputable lenders in good standing who can explain how the products work and help determine if they might be appropriate for your business.

For new businesses, Strathman also recommends exploring microloans, or short-term loans of $50,000 or less. These short-term infusions, often provided by non-profit organizations, can help new or even established small business owners in need of cash. The SBA provides a list of microlenders by state.

Consider alternative small business funding sources

Another option to consider is peer-to-peer lending platforms to request funding support from those in your physical or online community.

However, these platforms typically require promotional efforts to build the market awareness necessary to capture funds. It could be helpful to combine crowdfunding with more traditional financing options.

Funding your business doesn't have to exhaust your personal savings. Approaching the process with the intention of finding multiple sources can help.

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