Introduction to Different Types of Financing

So you want to secure business financing? That’s great — but there are tons of different options that you need to consider before selecting one. Here are some of the main options to consider.

Different Types of Financing for Your Small Business

SBA Loans

The U.S. Small Business Administration’s 7(a) loan program is designed to provide guaranteed financing options for qualified small businesses in need of working capital. You can apply for these loans through SBA-backed banks and financial institutions.

Lines of Credit

Lines of credit are flexible financing options that can be used for a variety of purposes. Often, you’re able to pay these back at reasonable rates and without the rigid payment schedule of termed loans. However, you do need to build up a solid credit history for your business first.

Short Term Loans

Short term loans are designed to help businesses with immediate needs or cash flow issues. You can access the money right away and pay it back over a period of under two years, usually at a fairly high interest rate.

Commercial Real Estate Loans

Commercial real estate loans are basically mortgages for commercial properties, with repayment periods of up to 20 years.

Microloans

Microloans are very small business loans, as little as $500, usually offered by individuals rather than financial companies. They originated as a way for people to help entrepreneurs in developing countries.

Crowdfunding

Crowdfunding allows you to solicit small donations to your business or a specific project from a number of donors, usually through crowdfunding sites like Kickstarter. Often, you need to provide investors with some kind of reward or equity in your business.

Peer-to-Peer Lending

Peer-to-peer lending sometimes gets confused with crowdfunding because it is also a financing option that lets multiple investors facilitate small business loans. However, these are usually loans that need to be repaid rather than donations requiring rewards or equity.

Merchant Cash Advances

If you need a large influx of cash for your business right away, you might consider a merchant cash advance. This type of financing offers an upfront lump sum in exchange for fixed monthly royalty fee.

Accounts Receivable Financing

Accounts receivable financing may be a relevant option for businesses experiencing cash flow problems due to delayed client payments. Basically, you borrow against your receivables to get money right away for bills or expenses. Then the lender either takes over the rights to the invoice, or you pay off the loan once you’ve received payment.

USDA Loans

For farmers or businesses in rural areas, the U.S. Department of Agriculture offers guaranteed loans for everything from real estate purchases to equipment or renovations.

Equipment Financing

Equipment financing can be secured through banks, equipment dealers or alternative financial institutions to cover the majority of a new equipment purchase.

Business Credit Cards

Similar to personal credit cards, business credit cards can be used for various day-to-day purchases. However, business credit cards can help your company establish its own credit score, while also protecting your own personal accounts and credit.

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