Funding Options to Start and Grow Your Business

Starting a business takes money, and few of us have enough cash on hand to do it without outside help. Bank loans are usually the first option that comes to mind, but they’re far from the only option. Whether you’re looking for funds to start a brand new business or to grow your existing company, there are lots of funding options available.

1. Community Development Financial Institutions (CDFIs)

CDFIs offer low-interest funds to those who may not qualify for traditional funding, for less than $250,000. These loans may be used for a wide range of business expenses, from start-up needs to funding the growth of an existing business.

CDFIs specifically aim to provide affordable lending to underserved entrepreneurs and low-income communities. Unfortunately, women, minorities, and low-income individuals often have a harder time getting traditional loans, so a CDFI can be a really helpful option. CDFIs also offer in-depth entrepreneurial and business support, such as mentoring and technical assistance.

For more information on national CDFIs and where to locate one in your area, the Opportunity Finance Network shares data on CDFIs across the country.

2. The Small Business Association (SBA)

The SBA dedicates a certain portion of its total annual loans to small businesses that are considered higher risk. Note that the SBA is not a traditional lender, but rather a guarantor that backs the loans for qualifying worthy entrepreneurs. Advantage (formerly 7(a)) and Grow (formerly CDC/540) loans are the primary SBA programs for small business loans; they also offer disaster relief loans, export loans, veteran, and women and minority loans. The SBA, as the name suggests, has a lot of expertise with small businesses and can provide educational and mentoring resources as well as helping you get financing.

These loans can be used to pay for a wide range of small business needs – from working capital to real estate to equipment. Generally, these loans have low-interest rates and long repayment terms. To find an SBA lender near you, visit SBA.gov/tools/linc.

3. Community Banks and Credit Unions

Community banks are small, locally-owned businesses, rather than large national firms. They tend to be much more focused on supporting local businesses (which often means small businesses) than their national counterparts. A community bank will have a lot of ties within the local business community, meaning they may be willing to consider your reputation rather than just your credit report. Since many small businesses don’t have an extensive credit history, that can make it a lot easier for you to get a loan.

Credit unions are also focused on locals, but they’re not-for-profit institutions. To work with a credit union, you’ll have to become a member. In addition, not all credit unions offer small business loans.

Both community banks and credit unions pride themselves on one-on-one personal customer service. They tend to value every account, not just the largest ones, so you may be able to get better support and service than you would at a larger institution. Both of these types of institutions can offer you low-interest loans with multi-term repayment. However, the application and approval process can take a long time and is often subject to strict regulations.

To find credit unions in your area, visit the National Credit Union Association. For more information on community banks, visit the Independent Community Bankers of America

4. Alternative Online Lenders

Alternative online lenders are relative newcomers to the entrepreneurial lending scene. The advantages of online lenders are their quick approval of applications and rapid turn-around on disbursement of funds.

The disadvantage is that online lending landscaping is largely unregulated. Lenders seeking funding for their small businesses should be wary of unscrupulous or predatory lending. If you’re considering this option, make sure you do your homework. Check with the Better Business Bureau, read online reviews, and try to get in touch with other businesses that have used the lending service.

Most importantly, make extra sure you read all the fine print. If you’re taking out a loan with a traditional lender, you have a loan officer to talk to and ask questions. That can make it easier to ensure that you understand all the terms of the agreement. Before you take on a loan from an online lender, take the agreement to your attorney to make sure you don’t get stuck with surprise fees and that everything is aboveboard.

5. Merchant Cash Advance

A merchant cash advance (aka, “PayDay Loan”) consists of cash upfront in exchange for a portion of future sales. The loan provider takes a percentage of sales daily plus a premium until the loan is paid back. This is a way to get really quick funds, but it comes with some serious downsides. You’re going to pay a very high interest rate and you may get stuck with extremely high fees. You may also find that paying that daily percentage of your sales leaves you in a situation where you’re constantly short of cash, which can trap you in a cycle of debt. You may consider a merchant cash advance as a last resort, but it’s a good idea to exhaust all your other options first.

There’s Funding Out There

When you want to take out a business loan to grow your operations or seek financing to start up a new company, know that traditional bank loans aren’t your only option. Before you take any cash, check out all the options available to you. Compare interest rates, length of the loan, and other terms. You’ll also want to consider the non-monetary elements of a loan – customer service, mentoring, educational resources, and more. Some business lending financial institutions are better for the health of your small business than others.

Accion Opportunity Fund also offers small business grants as part of it’s educational program. Check out our current programs here.

And whatever funding option you choose, remember to read the fine print!