Small Business Funding

5 Small Business Financing Options to Scale Your Business

To fund your small business, consider applying for a business loan, credit card, line of credit, grant, or pitching an investor — you have options.

June 22, 2022 4 min read Two business owners pose among the many houseplants for sale in their store.

When it comes to starting a business, capital access becomes one major, if not the biggest, concern. In fact, most Hello Alice temp checks have found access to capital is the number one dilemma among small businesses, with 89% of small business owners claiming lack of capital access limits their businesses’ growth. So what small business financing options are there for fledgling operations with scant resources?

What is Business Financing?

First, what exactly do we mean when we say “business financing”? Simply put, it’s any sort of money an owner acquires from outside of sales to use in the support of their business — opening a credit card to pay for operation costs or taking out a loan to fund a marketing initiative, for example.

Challenges in Small Business Financing

Let’s be real: financing isn’t fair. Credit and bank lenders have a history of discrimination and credit scores themselves are often regarded as antiquated and biased measures of financial worthiness. 

When Hello Alice polled small business owners, 50% had a personal credit score of 680 or better — strong enough to apply for most business credit cards — yet did not qualify for a business loan, which typically requires a score of 720 or better. On top of this, 49% of Black business owners who applied for financing in the last 12 months reported that none of their applications were approved.

With all of these systemic factors working against small business owners, what options are there and how can we break through the barriers?

Types of Small Business Financing

While many types of funding options for small businesses exist, some are more reliable and attainable than others. At the start of 2022, 62% of small business owners planned to apply for financing, which includes:

  • Loans
  • Credit cards
  • Lines of credit
  • Grants
  • Investors

Keep reading to find out more about each type of financing small businesses can choose.

1. Loans

If you’re in the market for a small-business bank loan, you’ll discover several types you can apply for, all with their own sets of qualification criteria. Some loan types include:

  • Traditional term loan
  • Secured loan
  • SBA loan
  • Vehicle loan 
  • Commercial real estate loan

Just remember, small business loans must be repaid and interest adds up. Be sure not to borrow a loan amount more than you need in order to avoid an excess of interest payments in the long run.

To learn more about loans and what it takes to get one, check out our guides Secure a Bank Loan and Secure a Loan From a Nonprofit Microlender.

For easily attainable loans, check out our Funding Center to explore options for your business.

2. Credit Cards

Many early-stage entrepreneurs may not qualify for more traditional forms of startup capital — such as bank loans. In that case, business credit cards may be a good way to go. Just remember to use your credit responsibly and pay attention to added costs and high interest rates. Exploring rewards programs can set your business up to earn cashback or other benefits for standard business spending. 

Dive into our Select the Right Credit Card guide to determine the right credit card option for you.

3. Line of Credit

Although credit cards and lines of credit overlap, they’re not quite the same thing. While a credit cards provides direct access to a line of credit, not all lines of credit are associated with cards, i.e., all credit cards are lines of credit but not all lines of credit are credit cards. Often, the APR on a line of credit is lower than on a credit card, and lines of credit tend to have a higher credit limit. The downside? Lines of credit don’t have the same rewards programs as credit cards.

Examples include:

  • Home Equity Line of Credit (HELOC)
  • Securities-Backed Line of Credit (SBLOC)
  • Personal Lines of Credit
  • Demand Lines of Credit
  • Business Lines of Credit

4. Grants

The closest you’ll get to free money, grants, depending on the type, require a service rendered or simply an application in exchange for capital. The only catch with grants? Locating them and determining eligibility. 

But that effort is worth it: when Hello Alice polled small business grant recipients, 96% reported grants were “very or extremely helpful” to the viability of their businesses. And to make things a bit easier, Hello Alice tracks down grants for you. To explore grants and their application requirements, check out Hello Alice Grant Opportunities to see collated grant programs as well as Hello Alice partnership grants.

5. Investors

Getting people to give you money sounds ideal, right? Just remember, when it comes to investor funding, it’s not quite free money. You’ll give up equity, or pieces of ownership, of your company in exchange for the investment funding you raise.

Different types of investors are:

  • angel investors
  • venture capital
  • personal investors
  • peer-to-peer lenders

The various investors expect different details in the pitches they receive, as well as different amounts of equity and say in the operations of your business. To learn more about pitching investors, including how to do so without losing complete control of your small business, read through our guide in partnership with Silicon Valley Bank, Get Your Startup Ready to Fundraise.

Final Thoughts

Don’t let the different financing options overwhelm you. With a little research combined with a thorough knowledge of your business’ financial needs, you’ll be well on your way to gaining the capital your business needs to thrive.

To read more about small business financing, check out the Small Business Funding section of the Hello Alice blog.