Four Popular Funding Options for Small Businesses

Getting funding for your business is often essential in order to meet your goals, expand your services or products, and market to customers. But with many different types of business funding to choose from, how do you know which is the best option for your company? Should you pitch to an angel investor, apply for a business loan, or get a merchant cash advance? We’ve taken a look at some of the most popular types of business funding for small companies.

Small Business Loans

Getting accepted for a business loan from the bank is getting rarer and rarer, and if you’re opening a new business with no financial history, then it’s near impossible to get any sort of bank funding. Typically, banks will lend money to businesses that have a strong credit rating and financial records to prove their incomings and outgoings, which can be tricky when you’re just starting out. Small business loans can help here; typically, these loans are easier to get accepted for and many small business lenders are willing to fund brand new companies just starting out.

Angel Investors

Rather than lending money, going with an angel investor means that you will sell somebody a percentage of shares in your business in return for the funds that you need to help it grow. This is an ideal option for small companies that have a lot of potential to be big in the future as investors are always looking for the ideas that are likely to provide them with the biggest and best returns. In addition, working with an angel investor often means that you get their experienced perspective and advice, which can be very useful for those just starting out in business for the first time.

Merchant Cash Advance

Merchant advances are a type of loan that you get from your credit card merchant. If you take card payments for your business, either online or using an in-store card reader, the loan will be repaid as a percentage of all the card payments that you take up until the debt has been cleared. This is an ideal option for businesses that take a lot of card payments since they are ideal for receiving a lump sum of money quickly that you can easily repay. Merchant cash advances are not typically intended for large business expenses, but they can be the best option if you need a small injection of cash to balance cash flow.

Invoice Factoring

Unpaid invoices can really mess with your cash flow and if you have clients who tend to drag their feet when it comes to making a payment, an invoice factoring company can help. With this type of funding, the amount that you are owed in invoices will be provided to you, and you will repay when the client pays their invoice. Like merchant cash advances, it’s not designed for larger business funding purposes, but rather to help you avoid a negative cash flow and keep things running smoothly if you rely on invoice payments to pay business expenses.

Choosing the right kind of funding for your business can be tricky, with several options to choose from. Consider what you need the funding for, how you plan to repay it and your chance of acceptance before you apply.

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