Every entrepreneur’s journey is unique, but there is one universal experience: finding small business funding. Whether it’s to aid cash flow or support operational costs, weather the storm through low sales or expanding for growth, owners need to acquire cash to support their business goals.

The good news? The options for business funding vary greatly — loan amounts, repayment terms, interest, benefits — and allow you to choose an option that aligns with your needs and helps drive your small business forward. So how do you obtain capital to help run your business? And what can you do as a small business owner to increase your chances of getting it? Let’s explore the basics of business funding so you’re empowered to take the next step in your entrepreneurial journey.

How Are Businesses Funded?

Other than personal funding sources (like your own savings), there are two main ways to fund your small business: equity and debt. Equity is an exchange of partial ownership in return for cash. Typically, there isn’t an obligation to repay the funds because they are “paid for” through the ownership terms.

The other option is debt, typically a small business loan. Unlike equity, you don’t have to sacrifice any ownership of your business, but you are obligated to meet the terms of the financial agreement.

What Do I Need To Get Business Funding?

Every lender and product are distinct, so there isn’t one perfect formula to guarantee access to small business capital. Approval ultimately comes down to a lender’s confidence in your ability to meet the repayment terms of the agreement. Nevertheless, there are actions you can take to help boost the lender’s trust in you and improve your financing options.

Solidify Your Business Plan

Some lenders require applicants to share a business plan. Even if they don’t, having one prepared demonstrates your organization, leadership and preparedness. It also provides context for the specific funds you’re requesting.

Check on Your Credit Score

Your credit score is an unbiased way to summarize financial trustworthiness and informs the terms of funding you qualify for. Most lenders will look at your business credit score as well as your personal credit score (the latter for certain if you haven’t developed your small business credit score).

Organize Your Books

Clean up your balance sheets, cash flow statements, income and loss statements and any additional operational documents. Lenders usually review your financial statements and accounting records. Any conflicting information or disorganization may make them question your finance management.

Review Your Online Presence

Your reputation is not only about your actions, but also how others interpret those actions (especially in the age of social media sharing). Many lenders perform a due diligence check during the approval process, including online reviews. Check common feedback platforms and respond to concerns or remediate any potential issues.

Do Your Research

Not all loans are created equal — you’ll want to choose the right lender and the right product to meet your funding needs. You can avoid wasting time filling out applications for loans that aren’t suitable for your business and improve your approval odds by applying for the right type of loan.

What Types of Business Funding Are There?

Various types of small business loans are available, and not all loans are created equal in terms of what will be the best fit for your situation. The right option for you will depend on the needs of your business, your desired repayment schedule and what terms you qualify for. Here’s a list of the most common funding types.

Term Loans

When you think of a traditional business loan, you’re probably picturing a term loan. You’d receive your funds in one lump sum and repay it on a predictable schedule (varies by lender and qualifying rates and terms).

Who is it best for? Business owners who enjoy predictable, fixed payments. Term loans help your cash flow with no surprises or large costs up front.

What to consider: You may want to come back for a subsequent loan. If you end up needing more funds, you may be able to reapply for a second loan. Your lender may discount the unpaid interest and pay off the existing balance. Ask your lender for qualifying factors.

Small Business Line of Credit

A small business line of credit is a revolving source of funding and allows you to draw the funds you need when you need them. Your limit is based on a credit check, much like a personal line of credit or a credit card.

Who is it best for? Small business owners who need to replenish inventory habitually. A business line of credit provides access to capital on an ongoing basis, making it easy to replenish your inventory, onboard a new employee and more.

What to consider: You may benefit from a line of credit if you need to refinance your existing debt. Depending on your current funding situation, the interest rate may be lower and help you pay off other loans at a lower rate.

Merchant Cash Advance

A merchant cash advance (MCA) is not a traditional loan.  In an MCA transaction, businesses sell their future/current receivables to the funding company at a discount. The funds you receive are based on the future revenue of your business and are assessed as a factor rate.

Who is it best for? Someone who needs consistency. With an MCA you’ll always know the total amount you will have to deliver to the funding company. No new receivables? There’s no absolute obligation to repay.

What to consider: MCAs are best for business owners with immediate funding needs. While an MCA’s range can vary, funding generally ranges from as low as $5,000 up to $300,000.

Small Business Administration Loans

A Small Business Administration (SBA) loan is a long-term financing option provided by a federal agency called the Small Business Administration. The SBA does not directly fund loans. Instead, they work with banks and private lenders to deliver a guaranteed portion of the loan.

Who is it best for? Someone looking for a long-term loan. Most SBA loans have longer repayment periods with the added benefit of lower interest rates (5% – 14%).

What to consider: SBA loans don’t have early repayment penalties or fees. If you’re able to pay it off sooner, you may be able to save more money in the long run.

Small Business Grants

Small business grants are lump sums given to a person, business or corporation, usually from federal, state county or local governments but sometimes sourced from private businesses and corporations. Grants do not require repayment, so as you can imagine, they’re challenging to come by. Use resources like the Small Business Administration to identify available grants and see what you qualify for.

Who is it best for? Entrepreneurs looking to supplement their business funding. Small business grants are usually much smaller than what you can receive with other sources of capital so they are usually pursued in tangent with other with business funds.

What to consider: Most grants have pre-requisites (e.g. a veteran-owned business with fewer than 20 employees with a history of supporting philanthropic efforts) or rules to comply with in order to receive the funds.

Venture Capital

This form of private equity is sourced by investors looking to get in at the ground floor of an up-and-coming startup. Investors are typically experienced with these types of business opportunities and are supported by a firm or an investment bank. As with traditional types of equity, most investors expect a stake in the company.

Who is it best for? Confident business owners who know how to sell their idea and have the business plan, experience and data to back it up.

What to consider: Venture capital support isn’t always cash. Sometimes it comes in the form of additional resources, technical expertise or managerial guidance.

Angel Investment

Similar to venture capital, an angel investor is a private equity source. The individual usually comes from a high net worth and provides business funds to startups or innovators in exchange for equity. The biggest difference between venture capital and angel investments is the latter often has a personal connection or has networked with the business owner. Additionally, it’s more common for angel investors to provide seed money or make a one-time investment to help the business get started whereas venture capitalists tend to stay involved.

Who is it best for? Small business owners connected to private investors.

What to consider: If you’re just starting out, it can feel drastic to give away a portion of your company. Make sure you fully understand the angel’s offer and weigh the risk and reward. 


Online fundraising platforms like Kickstarter and GoFundMe allow users to campaign for funds from everyday people. Entrepreneurs often reward their contributors with products or equity.

Who is it best for? People with a strong social media following or community they’re able to tap into to contribute.

What to consider: The securities laws and rules you’ll be required to follow if offering equity.

How Do I Know What Type of Business Funding Is Right for My Small Business?

There are two key things to consider when deciding what type of funding you chose to help finance your business: the product and the lender. Chose a product that provides sufficient access to credit and a repayment structure that reflects how your business operates. Most importantly, apply for business funds that appropriately cover the true loan amount you need. If you borrow too much, you could be overspending on interest and fees. Borrow too little, and you’ll need to go through the process all over again (and multiple inquiries can hurt your credit score).

In addition to multiple business funding products to choose from, there are also several different types of lenders that can provide you with a business loan. For example, you can work with a large commercial bank, a local community bank, a direct online lender, or a peer-to-peer lender. Each type of lender will offer diverse products and have different requirements for borrowers. Some lenders place value on good credit while others care about annual revenue. Carefully researching various business loan providers and their requirements before putting effort into an application will give you insight into which lenders you’ve got the best chances of qualifying with.

OnDeck is here to support small businesses through all their business funding needs. Visit our Success Stories page for insights from our small business community.


The information in this article is provided for educational and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial, legal or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.

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